ITC to streamline shareholdings in hospitality companies EIH and HLV

ITC Ltd has decided to consolidate and streamline its shareholdings in hospitality major EIH and HLV, which owns The Leela Mumbai.

Interestingly, the board of directors of ITC Ltd has given approval to the proposed consolidation of shareholding in the two hospitality companies when the diversified conglomerate is in the process of demerging its own hotels business into a new entity, ITC Hotels Ltd.

The Kolkata-based conglomerate’s board has approved acquisition of over 1.52 crore equity shares of ₹2 each of EIH Ltd and over 34.61 lakh equity shares of ₹2 each of HLV Ltd from Russell Credit Ltd, a wholly owned subsidiary of the conglomerate, at their respective book value. EIH runs hotels under Oberoi and Trident brands. According to market analysts, this exercise is basically an intra-group shifting to streamline holdings in the two hotel companies.

• Also read: ITC reports 3.1% growth in Q2 profit at ₹5,078.34 cr, revenue up 16%

After such acquisition, the total share holding of the company in EIH and HLV would be 16.13 per cent and 8.11 per cent of their paid-up share capital, respectively, ITC said in a stock exchange filing on Thursday.

The acquisitions are subject to obtaining relevant approvals from the board of directors of Russell Credit Ltd (RCL) and execution of necessary documents. The activities of RCL, an investment company, are primarily confined to making long-term investments in strategic thrust areas for ITC Ltd.

Notably, ITC Ltd and RCL currently hold 13.69 per cent stake and 2.44 per cent stake, respectively, in EIH. In HLV, ITC Ltd holds a 7.58 per cent stake.

Demerger process

The demerger process of ITC Hotels from ITC Ltd is expected to be completed within a few months. The Kolkata Bench of the National Company Law Tribunal (NCLT) earlier this month sanctioned the scheme of arrangement amongst ITC Ltd and ITC Hotels Ltd and their respective shareholders and creditors.

In the second quarter this fiscal, the conglomerate’s hotels business revenue rose 12.05 per cent year-on-year at Rs 727.65 crore, driven by F&B, Retail and Wedding segments. While operating profit from the segment increased 20.16 per cent y-o-y at ₹151.19 crore, EBITDA margin expanded 70 basis points y-o-y.

In a note on ITC’s results, Motilal Oswal on Friday said after the demerger of its asset-heavy hotels business, the conglomerate’s return profile will improve.

Notably, ITC Ltd chairman Sanjiv Puri in August last year pointed out that the proposed demerger of the hotel business would sharpen capital allocation and improve asset efficiency ratios for the diversified conglomerate.

The board of the cigarette-to-soap maker in July last year gave its in-principle approval to the demerger of its hotel business with the company holding a stake of about 40 per cent in the new entity– ITC Hotels–and the balance shareholding of about 60 per cent to be held directly by the company’s shareholders proportionate to their shareholding in the company.

UK-based British American Tobacco (BAT), the largest shareholder of ITC Ltd, recently said it would sell its stake in ITC Hotels at the right time.

“Well look, ITC Hotels, definitely there is no intention for us to be shareholders in hotels in India. Let’s be very clear. So, whenever we believe there is the right timing, we’re going to sell it,” Tadeu Marroco, Chief Executive, BAT, said while replying to a query during its “Capital Markets Day” on October 16.

Driven by good growth in agri and hotels businesses, ITC Ltd on Thursday reported around 3.1 per cent y-o-y growth in its standalone net profit to ₹5078.34 crore for the second quarter this fiscal.

On Friday, its scrip ended the day at ₹482.10 apiece on BSE, which was up by 2.17 per cent from the previous close.