ITC shareholders clear hotel business demerger with 99.6% majority

Chairman and MD Sanjiv Puri indicated the process may take 6-8 months to complete

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Shareholders of conglomerate ITC on Thursday voted, with a 99.6 per cent majority, in favour of demerging its hotels business.

The company announced the voting results after the shareholders’ meeting convened by the National Company Law Tribunal (NCLT) to approve the demerger of the hotels business into ITC Hotels.

The resolution for approving the scheme of arrangement among ITC and ITC Hotels and their respective shareholders and creditors has been passed by the members through a requisite majority, the filing with the stock exchanges said.

The ITC stock on Thursday at the BSE closed at Rs 435.80, up 1.28 per cent.

The shareholders’ nod came amid a recommendation to vote “against” the resolution from domestic voting advisory firm Institutional Investor Advisory Services (IiAS).

Other firms such as InGovern and Stakeholders Empowerment (SES) had advised their clients to vote in favour of it.

A majority of the shareholders who participated at the NCLT-convened meeting spoke in favour of the resolution.

Responding to a shareholder query on the timeline for completing the demerger, Chairman and Managing Director Sanjiv Puri indicated it would take six to eight months because some more steps were required.

The company has received approval from the stock exchanges, Securities and Exchange Board of India, and Competition Commission of India. After approval from shareholders, it would seek the tribunal’s nod.

Rationale behind demerger

Puri said the demerger would create a separate “pure play” hotels entity that would drive the next horizon of growth for the business with its asset-right strategy and enable sustained value creation for the shareholders. In addition, ITC Hotels would have a strong debt-free balance sheet with a net worth of nearly Rs 10,000 crore, which it can leverage to raise capital from the debt and/or equity markets.

The ITC board had approved the demerger scheme in August last year. Under the plan, the existing ITC shareholders will receive one share of ITC Hotels for every 10 shares of ITC. After the demerger, the shareholders will directly own 60 per cent of the new company, with ITC holding the rest.

The scheme, Puri said, would be a “win-win” outcome in the best interests of both companies and their shareholders, employees, creditors, and other stakeholders.

Growth pipeline

ITC adopted the asset-right strategy a few years ago. Puri said: “The strategy of the company articulated a few years back is asset-right -- a balance between managed properties, which will be the larger component of our growth in the future. And also, there will be some calibrated investments where the company deems fit for it to invest.”

The asset-right strategy is likely to take ITC Hotels to over 200 properties in five years.

In FY24, the hotels segment of ITC rang in revenues of Rs 3,103 crore and pre-tax profits of Rs 765 crore.

Unlocking shareholder value

On demerging other businesses, Puri said: “The management does review from time to time the arrangement that will create sustained value, given the competitive context, the maturity of the industry and the benefits that accrue from the synergies in the enterprise ...”