ITC Hotels, a division of conglomerate Kolkata-based ITC, has been split from its parent company and will now be listed independently on the BSE, formerly known as the Bombay Stock Exchange.
On Thursday, ITC shareholders voted 99.6% in favor of the spinoff of ITC Hotels. ITC will retain 40% of ITC Hotels following the spinoff. It also has stock in third-party hotel ownership companies that own the Oberoi and Leela Indian hotel brands.
ITC’s board agreed to the spinoff in August 2023 and said shareholders with ITC stock would receive one ITC Hotels share for every 10 ITC shares they currently hold.
On May 28, the Competition Commission of India approved ITC’s plan to have a shareholder vote on the spinoff of its hotel division, which is being coordinated alongside the government's National Company Law Tribunal, which arbitrates corporate restructurings, disputes and bankruptcy proceedings.
ITC was founded in 1910 and originally named the Imperial Tobacco Company of India. ITC Hotels has more than 100 hotels in India and in April opened its first international hotel, the 152-room ITC Ratnadipa in the Sri Lanka capital of Colombo. ITC Hotels' hotel and resort brands include ITC Hotels, Welcomhotel, Storii, Mementos, Fortune and WelcomHeritage.
For and Against
There has been wide discussion on the pros and cons of ITC spinning off ITC Hotels into its own company.
Amit Tandon, founder and managing director at Mumbai-based proxy advisory firm Institutional Investor Advisory Services, which advised shareholders to vote against the measure, said in an email interview he believes ITC’s board “has not clearly articulated its plan for the 40% holding in the hotels business, whether it proposes to eventually sell the equity to a strategic buyer or continue to hold it.”
Tandon added that the move doesn't seem to be a “complete exit” from its hotel ventures, with ITC “continuing to hold 40% of the hotels business.” ITC also has a 13.69% stake in EIH Limited, the parent company of fellow Indian hotel company Oberoi Group. Further, ITC has a 7.58% stake in HLV Limited, operator of the Brookfield Asset Management-owned Leela, an Indian luxury hotel brand.
“While it partially unlocks value [to the extent of 60%], capital support will likely continue to be provided by ITC to the hotels business in its capacity as a promoter,” he added, citing what he saw as the firm’s high operating leverage and volatile revenue.
InGovern Research Services, a Bangalore-based peer firm to IIAS, advised shareholders to vote for the ITC's spinoff of ITC Hotels. Shriram Subramanian, its founder and managing director, said in a statement sent to HNN that the spinoff will unlock substantial value for existing ITC shareholders.
“ITC’s hotel business, while growing at a healthy rate of 9% compound annual growth rate over the past decade and now encompassing 120 properties, contributes only 3.7% of ITC’s overall sales and 2.3% of earnings before interest and taxes with an EBIT margin of 22%,” he said.
Regarding ITC’s third-party hotel interests, Subramanian said the ITC board has recognized investor concern.
“By structuring the ownership differently through a de-merger, ITC can still participate in India’s hospitality growth story while reducing its capital involvement in the segment,” he added.
In its full-year 2023 earnings results, ITC reported its hotel division achieved revenue growth of 15.6% and profits before interest and taxes increased by 39.1% year over year, “driven by higher revenue per available room, structural cost interventions and operating leverage.”
The split of ITC and ITC Hotels follows peer Kolkata-based firm Apeejay Surrendra Park Hotels going public in February. In its initial public offering, Park Hotels issued new equity shares valued at 6.5 billion Indian rupees ($78.2 million) and offered for sale equity shares valued at a further 4 billion rupees.