ITC Ltd. has approved to carve out its hotels business into a separate unit, reviving a value-unlocking plan that the cigarettes-to-staples maker had shelved after the pandemic disrupted travel and tourism.The board accorded its “in-principle approval” to the demerger of hotels business under a scheme of arrangement, according to its exchange filing on Monday. The company will hold 40% stake in the new entity and the rest of about 60% will be owned by shareholders proportionate to their holding in ITC, it said.The scheme will be placed before the board for its approval on Aug. 14. To formalise the spinoff, the consumer goods maker will set up ITC Hotels Ltd., or any other name approved, as its wholly owned subsidiary."The creation of a hospitality-focused entity will engender the next horizon of growth and value creation by harnessing the exciting opportunities in the Indian hospitality industry," said Sanjiv Puri, chairman, ITC. Puri had first declared the company's intent to create alternative structures for the hotel business before the pandemic in the 2020 annual report. He later told shareholders about the plans to unlock value for the hotel business demerger at the company's annual general meeting last year. Since then, the street has awaited details as ITC is among the largest hotel chains in India, with more than 120 properties.The plan comes when the hotel industry is seeing recovery after the Covid-19 disruption. As ESG becomes a key investment condition, a large number of global institutional investors and others would not invest in ITC. Spinning off the hotels business will help draw investors, unlocking value."The hotels business has matured over the years and is well-poised to chart its own growth path as a separate entity in the fast-growing hospitality industry with sharper focus on the business and an optimal capital structure," ITC said in a statement. The move, it said, also reinforces the sharper capital allocation strategy put in place in recent years, manifest in the pivot to "asset-right" strategy in the hotels business.ITC has been increasingly focusing on an asset-light strategy and currently, slightly over half of the room inventory is through management contracts, while the rest comes from owned hotels.ITC's hotels segment has posted stellar recovery in fiscal 2023 and doubled revenue over FY22 to 1.4 times the pre-pandemic levels as a result of pick-up in business travel, weddings and leisure. Ebitda margin expanded by 930 basis points over FY20 to 32.2%, led by cost optimisation initiatives. Brokerages value ITC's hotels business at Rs 20,000-25,000 crore."This is a step in right direction," said Abneesh Roy, executive director, Nuvama Institutional Equities. "The 40:60 ratio is a healthy balance, which will give enough freedom to shareholders and also ensure that the hotel business continues to get the institutional synergies from the bigger entity." The main sum of the parts comes from cigarette (72%) and FMCG (19%).The hotel business contributed less than 5% of ITC revenue and EBIT over the last decade. However, it accounted for over 20% of ITC's capex in the past. The demerger will remove overhang from investor concerns of hotels being a low return-on-equity business.Shares of ITC tumbled over 4% after the announcement as compared with an almost unchanged Nifty 50.