ITC of India Decides to Extend Holdings in Hotel Business Following Spinoff
ITTC Shares Slide 3.3% as Investors Question 40% Stake Retention in Hotel Business Post Spinoff
chandni
Shares of the Indian conglomerate ITC (ITC.NS) experienced a 3.3% decline on Tuesday, extending losses from the previous session, as investors expressed concern over the company's plan to retain a 40% stake in its hotel business following its spinoff.
ITC announced on Monday its decision to separate the hotel business from the cigarette and food units through a spinoff, with the company retaining a 40% ownership in the new entity, while the remaining stake will be held by ITC shareholders.
The move comes after a significant drop of nearly 4% in ITC's shares on Monday, marking the largest single-day decline since September 26, 2022, and similar to a previous decline earlier this month when the stock reached record highs amid speculations about the potential spinoff.
Analysts from Jefferies noted that some investors might have preferred a complete split to fully unlock the cash-rich potential of the hotel business. While the hotel segment contributed less than 5% to ITC's revenue and earnings before interest and tax (EBIT) over the past decade, it accounted for over 20% of the company's capital expenditure.
ITC currently operates more than 120 hotels with over 11,600 keys in over 70 locations, competing with Tata Group's Indian Hotels Co (IHTL.NS), known for owning properties like Taj and Marriott.
Further details on the rationale behind the new corporate structure are expected to be provided in an executive call scheduled for Thursday. The final approval for the spinoff is set to be voted on at a board meeting in mid-August.
Analysts are eager to gain clarity on various aspects, including the reason for retaining a 40% stake, the royalty structure, potential tax implications, and the key criteria for attracting investors or strategic partners to the business, according to Emkay Research.
Nomura analysts also raised concerns that the "not a clean merger" approach might limit the potential value that could be unlocked from the move.
ITC's primary revenue contributor remains its consumer goods business, notably led by the cigarette segment. The company is expected to report its quarterly results in the upcoming week.
