In a significant development, the board of ITC (Indian Tobacco Company) granted in-principle approval on Monday for the demerger of its hotels division into a separate entity, which is scheduled to be listed through a scheme of arrangement. However, experts and analysts assert that this move is unlikely to disrupt the existing synergies between the conglomerate’s hotels business and other core lines of operation, particularly its foods division.
The proposed demerger of ITC’s hotels division into a new standalone entity has drawn attention from investors and industry experts alike. Amidst speculation surrounding the potential consequences of such a strategic move, JM Financial, a prominent broking firm, issued a comprehensive report asserting that the integration between the hotels business and other key divisions of ITC, such as its thriving foods sector, should remain largely unaffected.
ITC has long been revered as one of India’s foremost diversified conglomerates, with interests spanning across various sectors, including FMCG (Fast-Moving Consumer Goods), agribusiness, paperboards, and packaging, to name a few. Notably, the conglomerate has gained substantial prominence in the hospitality industry through its chain of luxury hotels, earning a reputation for unparalleled service and opulence.
According to JM Financial’s report, the conglomerate’s decision to demerge the hotels business should not lead to any significant disruption of operational synergies that have been carefully cultivated between the hotels division and its other business lines. Industry observers point out that ITC’s foods division, which includes a diverse portfolio of consumer food products, has achieved considerable success over the years, and its association with the hospitality arm has likely played a crucial role in enhancing customer loyalty and brand recognition.
While the demerger could result in the formation of an independent hotel entity, experts emphasize that this new structure is designed to enable more focused attention on the specific needs of the hotels business, potentially leading to improved efficiency and growth prospects. Moreover, ITC’s formidable brand equity, built over decades of dedicated service in multiple industries, is expected to continue benefiting the hotels division, even under the new arrangement.
The JM Financial report further highlighted that the hotels division, with its prestigious chain of luxury properties across the country, would likely continue to collaborate with the foods division to leverage cross-selling opportunities. The hotel guests’ exposure to ITC’s wide array of consumer products during their stays has been a strategic advantage, benefiting both the hotels and foods businesses. Analysts predict that the demerger will not deter this mutually beneficial relationship, and efforts will be made to maintain such synergies.
While the proposed demerger may create separate financial reporting for the hotels business, the underlying operational ties between various entities within the ITC conglomerate are expected to remain resilient. In fact, the demerger could potentially unlock new opportunities for each business line to pursue individual growth trajectories while continuing to draw on the collective strengths of the conglomerate.
The move comes at a time when the hospitality industry is experiencing a gradual recovery from the pandemic-induced slowdown. Industry experts see this demerger as a strategic maneuver that could infuse fresh momentum into the hotels division, enabling it to adapt swiftly to the evolving market dynamics.
The board’s in-principle approval for the demerger of ITC’s hotels business into a separate entity has garnered attention and curiosity within the business community. Nonetheless, analysts and experts are optimistic that the move will have minimal impact on the existing synergies with other core business lines, particularly the foods division. As the conglomerate takes the necessary steps to implement the demerger, all eyes are on ITC’s continued journey toward growth and diversification, guided by its rich legacy and commitment to excellence across industries.