ITC will benefit from the separation of hotel business, expected to increase in capital efficiency ratio

ITC on Monday announced that the company's board has given in-principle approval for the demerger of the hotel business into a new entity to be listed as per the plan of arrangement. To this, equity analysts said on Monday that the merger of ITC Limited's hotel business into a separate unit will boost the capital efficiency ratio of the diversified conglomerate. What is the whole news, let's know.
Under the scheme of the arrangement, ITC will hold a 40 percent stake in the new entity and the balance will be held directly by the shareholders of the company in proportion to their holding. IIFL analyst Nemkumar said, "This is a great demerger. This will boost ITC's return on capital and increase its capital efficiency ratio by about 20 percentage points."
"The demerger process will take about nine to 12 months and each shareholder of ITC holding 100 shares will get 60 shares of the new entity," Nemkumar added. He added that the market was certainly expecting a demerger.
Another analyst said the demerger process will unlock value for shareholders by giving them a direct stake in the new entity and help in a faster capital allocation policy outlined in ITC Next's asset-right strategy.
Another analyst, on condition of anonymity, said, "ITC's 40 percent stake in the demerged hotel business will provide stability to the new entity while continuing the company's focused approach to improve business margins, profitability, and competitiveness."
Restructuring is a sensible approach, which will provide long-term stability and allow the company to have a continued strategic interest in leveraging synergies for its rapidly growing food business.
Company officials said the move also reflects the intent of its Chairman Sanjiv Puri's ITC Next strategy, which redefines investment for future growth with a faster capital allocation policy, better profitability as well as structural advantages to enhance competitiveness. Brokerage firm Sharekhan said ITC's return profile will improve significantly in the coming years after the hotel business is demerged.