Shareholders of ITC Ltd will get one share with a face value of Re 1 in the demerged hotel business for every 10 shares they hold in the parent company.
The share entitlement ratio for the spinoff and the proposal of the demerger were approved by the board of the company on Monday, setting the ball rolling on the reorganisation process that could take 15 months to complete.
As part of the process, properties, assets, investments, employees, liabilities and contracts forming part of the hotel business are intended to be transferred. However, investment in hospitality entities such as in EIH Ltd will be retained by ITC Ltd.
ITC Hotels will be given a licence to use the ‘ITC ’ name as part of its corporate name and some of its properties / brand names, subject to customary conditions.
Trademarks jointly used by ITC’s other businesses and hotels business will be licensed to ITC Hotels, on mutually agreed terms.
The equity share base of ITC Hotels Ltd is going to be Rs 208 crore, which is comparable to the peers such as IHCL and EIH Ltd. The number was derived after taking into account the equity base of ITC Ltd at Rs 1,246.5 crore.
The calculation also takes into consideration that ITC Ltd will continue to hold 40 per cent directly and only 60 per cent of ITC Hotels shares are being distributed among shareholders through this share swap deal.
The company management has maintained that the arrangement will protect shareholders’ value as they will effectively get 100 per cent of ITC Hotels Ltd, partly via the parent and the rest through allotment of shares in ITC Hotels.
In an investor presentation filed with the bourses, ITC Ltd defended the share swap ratio, underlining the fact that the number of shares an ITC shareholder gets will be determined on the basis of the share entitlement ratio.
The ratio is a function of the share capital (i.e. number of shares) of the two companies, it added. Moreover, the ratio has no bearing on the market capitalisation of ITC Hotels; only on price per share, the company maintained.
The share entitlement ratio, sources said, is also aimed to ensure that ITC Hotels Ltd does not suffer from excess liquidity, which may not be in sync with the inherent business and valuation of the demerged company.
On July 5, Nuvama Institutional Equities had accorded Rs 8 a share value to the hotel business on SoTP (sum of total parts) basis with a target price of Rs 500 for ITC. The company’s stock, however, closed on Rs 448.95 on Monday, after hitting a lifetime high intraday on July 24, just before the hotel business spin off plans were announced.
PAT rises 16%
ITC Ltd’s profit after tax surged 16 per cent in the first quarter, driven by cigarette, hotels and non-tobacco FMCG business even as revenue from operations skid 6 per cent due to the muted performance of the agri business which bore the brunt of the wheat export ban.
PAT stood at Rs 5,189.16 crore in Q1FY24 compared with Rs 4,472.03 crore in the same period of last year, while revenues from operations were down to Rs 18,639.48 crore compared with Rs 19,831.27 crore.
Sustained volume claw back from illicit trade on the back of deterrent actions by enforcement agencies and relative stability in taxes led to segment revenue in cigarettes to go up by close to 12 per cent to Rs 8,355.66 crore in Q1. Profit before tax rose to Rs 4,944 crore compared with Rs 4,469 crore a year ago.
The FMCG business (foods, health and personal care and stationery items) crossed the quarterly revenue of Rs 5,000 crore for the first time to reach Rs 5,172.71 crore. PBT doubled from this segment to Rs 433.93 crore compared with Rs 206.87 crore a year ago.
The hotels business reported the best ever first quarter results with PBT of Rs 134.3 crore and revenue of Rs 624.9 crore. Revenue from agri business was down to Rs 5,726.98 crore from Rs 7,492.14 crore in Q1FY23 but PBT was up to Rs 352.27 crore.
Paperboard, paper and packaging business recorded a drop in revenue to Rs 2,120.76 crore, while PBT was down to Rs 471.26 crore from Rs 612.98 crore in Q1FY23.
