BAT Mulls Exiting ITC Hotels Business Following Demerger


During a recent post-earnings call, Tadeu Marroco, CEO, British American Tobacco (BAT) informed analysts that BAT, the largest shareholder of India’s leading cigarette maker ITC Ltd, is considering withdrawing its stake in ITC’s hotels business following the demerger from the parent company. Marroco’s remarks followed BAT’s earlier announcement of its intention to monetize a portion of its 29 percent shareholding in ITC Ltd.

The demerger of the hotels business was approved by the ITC board on August 14, 2023, with a projected timeline for the listing of the new entity in approximately 15 months. Shareholders of ITC will retain around 60 percent direct ownership in ITC Hotels (proportionate to their stake in ITC), while the remaining 40 percent stake will remain with ITC. Marroco suggested during the analyst call that BAT is likely to monetize its stake in the hotels business.

“There is no strategic intent from BAT to be a minority shareholder of a hotel company in the Indian market.The decision on this (monetization of hotel biz stake) will be taken by the board when the time comes,” Morroco said.

Discussing the rationale behind the demerger of the hotels business, Sanjiv Puri, Chairman and Managing Director, ITC highlighted that the move will allow the hotels business to accelerate its growth, while for ITC the returns ratios will improve significantly. “From an ITC perspective, the returns ratio improve immensely. It reinforces our stated position on a sharper capital allocation. It is directed towards value unlock of existing shareholders. So, all stakeholders are positioned to benefit from this proposal that we have,” Puri said in an investor call last year.

ITC’s hotels business posted a revenue of Rs 842 crore in Q3 FY24, up 18 percent from the same period last year, while profit grew 57 percent year-over-year to Rs230 crore. The company said that the hotels business witnessed strong growth in ARRs (average room rates) and occupancy across properties driven by retail and conferences segments and marquee events like the ICC Cricket World Cup.The hotels business added 22 new managed properties in the last two years and the company plans to add 25 new hotels in the next two years.

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