ITC’s Big Move: The Hotels Business Spins Off – Here’s What You Need to Know

This is it. January 6, 2025 – ITC’s hotel business is officially demerging. And the buzz is real.

Here’s why this matters: ITC Hotels has been a drag on ITC’s core returns for years. Consider this:

• ITC Hotels consumed 20% of ITC’s capital but contributed only 3%-4% of operating profits.
• Compare that to ITC’s tobacco business – under 10% of capital employed, yet 80% of operating profits.

This mismatch had shareholders asking, Why hold onto a low-margin, capital-intensive business?

Well, ITC finally listened. After decades of debate (and investor pressure), the demerger is here. The National Company Law Tribunal gave its stamp of approval on December 16, 2024, and tomorrow, ITC Hotels becomes its own standalone entity.

Here’s the play-by-play ??

Why demerge now?

The Asset-Right Pivot Paid Off: In 2018, ITC Hotels shifted gears. Instead of owning hotels, they started managing properties under their brand. A classic “asset-light” pivot.

• Today, 55% of ITC’s hotel inventory operates on this model. By 2030, it’ll be 65%.
• Capital expenditure is down, profitability is up, and revenue growth has been impressive over the past few years.

ESG Appeal Matters: ITC Hotels doubled down on its “Responsible Luxury” strategy – luxury meets sustainability.

• This is HUGE because ITC’s main business, tobacco, doesn’t exactly win ESG brownie points. Now, investors can pick a green-focused hospitality business without the tobacco baggage.

Hospitality Industry Tailwinds:

• India’s hospitality sector is still under-penetrated. Rising affluence, tourism-friendly policies, and demographics are all in favor.
• ITC Hotels is India’s second-largest hotel chain (after Taj Group), with 140 hotels and 13,000 keys. By 2030, they plan to hit 200 hotels and 18,000+ keys.

What does the demerger actually mean for shareholders?

Here’s the deal:

• For every 10 shares of ITC you own, you’ll get 1 share of ITC Hotels.
• Record date: January 6, 2025. (Make sure you own ITC shares by Jan 3 to qualify!)
• ITC will retain a 40% stake in ITC Hotels, while shareholders get the remaining 60%.

The goal?

• Unlock value for shareholders by giving them direct access to a pure-play hospitality stock.
• Free up ITC to focus on its high-margin businesses like FMCG, agriculture, and tobacco.

What happens to ITC Hotels post-demerger?

• ITC Hotels will hit the stock market soon after, with analysts estimating a valuation of ?130-170 per share.
• BUT – there might be some short-term volatility. ITC is a part of major indices, but ITC Hotels won’t be. Index funds could sell off ITC Hotels shares, creating pressure on the stock price (like we saw with the Reliance-Jio Financial demerger).

That said, long-term potential looks strong:

• Zero debt.
• Solid growth trajectory.
• Positioned to ride the hospitality wave.

A Look Back (and Ahead):

ITC Hotels has come a long way – from being a cash guzzler to a leaner, more profitable operation. By spinning it off, ITC sends a clear message: Focus on what works.

And here’s the kicker: ITC’s demerger sets the stage for bigger possibilities. With hotels out of the picture, does ITC double down on FMCG? Spin off paperboards? Go bold with new verticals?

2025 just started, and ITC is already shaking things up. This is one corporate evolution worth watching.

What do you think? Bullish on ITC Hotels as a standalone business?