Analysts had not ruled out the possibility of ITC buying BAT’s stake in hotels to take its ownership above 51% mark but now the management has clarified in an analyst call that as of now, the plan is to maintain a stake around the 40% range and that there are no plans to buy additional stake from other investors.
ITC will also earn royalty from the new subsidiary to use the ‘ITC’ brand based on industry benchmarks.
After the demerger, ITC Hotels, which will have a strong debt-free balance sheet, will be accounted as an associate company. ITC said its RoCE shall improve by 18–20% and RoIC by 10%.
The management said ITC Hotels will continue to follow the ‘asset-right’ strategy, adding new hotel properties mainly through management contracts. “The business has added 18 new properties in the last 16 months and has a strong pipeline across all brands. It may, however, consider newly-owned hotels if there is a strategic rationale,” Jefferies analysts noted after talking to the management.
As per current projections, internal accruals should be sufficient to fund the envisaged growth plans of the hotels business but it will have the option to raise external capital.
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I did a quick search and looks like most investments of BAT are in tobacco companies and new investments are focussing on nicotine vaping and heated tobacco. So likely BAT would exit hotel business. Maybe an opportunity to buy ITC Hotels if there is severe reaction on listing day.
disc - invested in ITC from long time.
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