ITC Hotels Becomes an Independent Entity

ITC Ltd. has announced the demerger of its hotel business, a move aimed at creating a focused entity to drive growth in the hospitality sector. As part of this demerger, ITC will transfer ₹1,500 crore to ITC Hotels to support its growth initiatives and manage contingency requirements. Additionally, ITC Hotels will be granted a license to use the well-known trademarks of ITC, including iconic brands like Bukhara, Dum Pukht, and Dakshin, under a Trademark License Agreement.

The demerger will officially take effect on January 1, 2025, with ITC Hotels operating as an independent company thereafter. ITC Ltd. will retain a 40% stake in ITC Hotels, while the remaining 60% stake will be distributed to ITC shareholders at a ratio of 1:10—one share of ITC Hotels for every ten shares of ITC Ltd. Shareholders of ITC as of January 6, 2025, will be eligible to receive ITC Hotels shares. The new entity plans to list its shares on stock exchanges within 60 days of receiving the National Company Law Tribunal (NCLT) order.

All assets related to the hospitality business, including offices, housing for staff and management, and investments in various entities, will be transferred to ITC Hotels. The company will also manage ITC Grand Central in Mumbai under a service agreement with ITC Ltd. Importantly, ITC Hotels will begin its journey as a zero-debt company, ensuring a solid financial position to support future growth and explore selective acquisitions.

ITC Hotels is one of India’s largest hotel chains, operating over 140 hotels across 90 destinations under six brands. The business contributed 3.7% to ITC Ltd.’s revenue in FY24. With this demerger, ITC Hotels is well-positioned for accelerated growth and enhanced cash generation.

Source: Q2FY25 Financial Results, Page-5

The NCLT approved the demerger scheme on December 16, 2024, clearing the path for ITC Hotels to emerge as a player in the hospitality sector.

Further, ITC has strengthened its foothold in the hotel industry by acquiring an additional 2.44% stake in Oberoi Hotel’s parent company. This move underscores ITC’s commitment to expanding its presence in the Indian hospitality market. The demerged ITC Hotels will focus on using its established brand and operational strengths to capitalize on growth opportunities.

ITC Hotel's current portfolio comprises 140 properties across 90+ locations, offering approximately 13,000 keys, 45% of which are owned. Its brands include ITC Hotels, Mementos, Welcomhotel, Storii, Fortune, and WelcomHeritage. By 2030, the company targets expanding to over 200 properties and 18,000 keys, with 35% being owned.

In FY24, the hotel segment contributed 4.3% to ITC’s total sales and 3.1% to EBIT. The revenue from this segment is projected to grow at a CAGR of 13.8% through FY27, reaching ₹45.7 billion, supported by a 35% EBITDA margin. ITC has allocated ₹15 billion for future investments to drive this growth.

The valuation of the hotel entity is based on an EV/EBITDA multiple of 30x for FY26/27 estimates, arriving at an intrinsic equity value of ₹160–200 per share, adjusted to ₹17/share for ITC.

However, some risks remain. The 15%+ stake held by BAT in the hotel business might require strategic investor involvement. Additionally, rising commodity prices and local competition pose challenges to growth.

Despite these risks, the company’s outlook is positive. The Finance Ministry predicts industrial activity will gain traction in the second half of FY25, while capital formation is expected to rebound. ITC Hotels is set to leverage its strong foundation, operational strengths, and recognized brands to achieve its ambitious growth plans.