All about demerger of ITC Hotels Ltd. & current market position.
There is a long wait in the demerger of ITC hotels Ltd with ITC. The board has proposed the demerger on 14th Aug 2023 which got the approval from NCLT on 1st January 2025. After the NCLT approval 6th of January will be considered as the record date of the demerger to determine the shareholders to whom shares would be allotted. The demerger will be announced in the ratio of 1:10 it means that the investors will get 1 share of ITC hotel for 10 share held for ITC.
In addition to this ITC will retain 40% stake in ITC Hotel Ltd and rest 60% will be distributed among existing shareholders. The shares of ITC hotels Ltd will about to list on BSE and NSE on 29th January 2025.
The demerger will unlock the value creation for the investors. It is a win - win situation where balance sheet of ITC will be removed with the burden of capital-intensive hotel company, on the other end the scheme will give independent market valuation to ITC Hotel Ltd & give opportunity to those investors who intent to invest in hospitality sector. This will provide stability and growth opportunities to the hotel segment of the company. After demerger ITC Hotels Ltd will become 2nd biggest listed hotel company in India.
A brief comparison in the market:
Indian hospitality sector is covered majorly by IHCL, Chalet, EIH and other market players which are not listed like OYO. After demerger ITC Hotels Ltd will become 2nd biggest listed hotel company in India.
Let’s take a look at the revenue generation and assets of all the market players to analyze the basic position of ITC Hotels in the market:
IHCL is considered as the leading market player in the hospitality sector however after delisting ITC Hotels Ltd will become the second leading player in the market. As we can see there is not much difference in the value of the asset of both the companies but a significant gap in revenue generation. As after demerger ITC hotels Ltd will become a separate entity with second largest market share there is a lot of opportunity for the company to increase the top line growth and expansion in market. Defiantly, merely asset and revenue can not be used to analyze the company and make investment decision but it can provide the basic position of the company in the market.
Sector analysis and upcoming trends:
In 2021, the travel & tourism industry’s contribution to the GDP was US$ 178 billion; this is expected to reach US$ 512 billion by 2028. India is geographically diverse and offers a variety of cultures that come with its own experiences, making it one of the leading countries in terms of international tourism expenditure. With this government also spending significantly in building the infrastructure which will ultimately benefit the travel, tourism, and hospitality sector at large.
With increase in GDP, Per Capita Income, Global events in India and the trend were people stay at luxurious hotels to revive themselves of stress in a peaceful getaway. India’s travel and tourism industry has huge growth potential.
The same is reflected with the expansion of the leading market companies. IHCL has introduced 34 new openings and 53 new signings in FY 23-24 at different locations. Chalet group has 8 new projected under developments at different locations in India. In February 2024, Mahindra Holidays & Resorts India Ltd (MHRIL) intends to invest around Rs. 4,500 crore (US$ 541.6 million) over the next three to four years, aiming to double its room capacity to 10,000. Not only the market leaders are making the expansion but other small hotel chains are also expanding there operation locally or interstate. All this is further complimented with the tourist friendly government regulation as Rs. 2,449.62 crore (US$ 294.8 million) is allocated to the tourism sector in interim Budget in 2024, it is a 44.7% increase from the previous fiscal year.
As the travel, tourism, and hospitality sector has a huge potential to grow in the future and can be determined an uptrend in the sector. This will create a positive impact on GDP as well as the hospitality companies and hotel chains.
Source: https://www.ibef.org/industry/tourism-hospitality-india
Conclusion:
The demerger of ITC Hotels can create a positive impact on the investors by creating the value. The company can focus on its core business as the second biggest leader in the market and a brand value of ITC there is a significant opportunity to grow. This all comes up with the favorable sector uptrend in the future.