The demerger ratio announced is not quite favorable to existing shareholders, since shareholders are not getting one share for each share they are holding, they are disappointed. Markets have been gung-ho about the demerger because the hotel business has been a drag on ITC’s books. The hotel division had been a capital guzzler, accounting for over 20% of ITC’s capex. However, it contributed less than 5% to ITC’s revenue and EBIT over the last decade.
The demerger will remove the overhang from investor concerns about hotels being a low return-on-equity business, allowing them the option to stay only with ITC’s high-return businesses.
Disc: No Buy or Sell recommendations…
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