ITC - ROCE To See Sharp Jump Post Long-Awaited Hotel Demerger: Systematix

Systematix Research Report

ITC Ltd.'s management has proposed the long-awaited demerger of its hotel business into a new separately listed entity. Under the demerger scheme, ITC would hold a stake of 40% and the balance 60% will be held by company’s shareholders proportionate to their shareholding in the company.

The hotel business has been a cash-guzzler for ITC contributing only about 4% to revenue and 3% to ITC’s Ebitda in FY23 with 22% contribution to its capital employed resulting in single-digit return on capital employed.

With the new company now becoming an associate company for ITC, it would drive a significant 18-20% jump in ROCE and ~10% jump in return on invested capital for the company.

The transaction is expected to be tax-neutral with stamp duty cost not having a material bearing on the transaction.

A royalty structure will be worked out based on relevant industry benchmarks at a later date.

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