Three proxy advisory firms are mixed on their view on ITC's proposed demerger and separate listing of the hotels business.
InGovern and Stakeholders Empowerment Services (SES) recommended shareholders vote in favor, whereas Institutional Investor Advisory Services (IiAS) advised voting against the resolution.
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“The proposed structure, while designed to improve ITC’s ratios, provides neither a complete value unlocking for shareholders nor does it materially reduce any capital support responsibilities for the hotel business from ITC,” said IiAS, as it does not foresee the demerger unlocking any substantial value for ITC's hotel business.
IiAS pointed out that the board of directors has not clarified their intentions for the 40 percent stake in the hotels business. It remains uncertain whether they plan to sell this equity to a strategic buyer or keep it. IiAS is asking the management for more details on this issue.
"While [the demerger] partially unlocks value, capital support will likely continue to be provided by ITC to the hotels business in its capacity as a Promoter," IiAS added
SES sees no concern regarding the valuations of ITC Hotels. It said, “Since ITC Hotels will have mirror shareholding (60 percent of ITC) and balance will remain with ITC, the valuation is immaterial at this stage. Further, as ITC Hotels will be listed value will be through a transparent price discovery mechanism. Hence, no concern is identified in this regard.”
The hotel segment is the smallest in ITC's portfolio, contributing only 3 to 5 percent to its overall revenue. IiAS noted that the demerger is unlikely to yield significant synergies due to the modest revenue from the hotel business. Market analysts estimate the value of the new, independent entity to be between Rs 12 and Rs 23 per share.
Also Read | ITC to convene meeting of shareholders to approve demerger of hotel biz on June 6
ITC said on May 23 that after obtaining no-objection from stock exchanges, the National Company Law Tribunal (NCLT) has directed the company to convene a meeting of shareholders on June 6, 2024, to consider and approve the proposed demeger of its hotel business.
On August 14, 2023, the board of directors approved the demerger of the hotels business, with an indicative timeline of listing of the new entity in about 15 months. The hotels business will have the license to use the ITC brand name.
Under the demerger, shareholders will get one share of hotels business for every 10 shares held in ITC. ITC shareholders are to hold about 60 percent direct stake in ITC Hotels (proportionate to their stake in ITC) and the remaining 40 percent stake to continue with ITC.
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