The demerger of ITC’s hotels business will lead to efficiency in capital allocation and is set to improve the company’s ROCE (return on capital employed) by 18-20 per cent and ROIC (return on invested capital) by double-digit of about 10 per cent.

At an investor call on Thursday, ITC said the new entity will have a strong debt-free balance sheet and will be “well capitalised”.

“The segment ROCE ratio should improve by 18-20 percentage points and ROIC is expected to improve double-digits by 10 percentage points. This is based on current financials and is a ballpark figure,” Supratim Dutta, CFO, ITC, said in the investor call.

ITC’s board had recently accorded in-principle approval to the demerger of its hotels business under a scheme of arrangement; with the company holding a stake of about 40 per cent in the new entity and the balance shareholding of about 60 per cent to be held directly by its shareholders proportionate to their shareholding in the company.

Also read: ITC’s hotel biz demerger: Room to grow for investors? 

“The arrangement (40 per cent stake with ITC) will give flexibility to new entity to chart its new growth path, raise its own resources and funds based on asset right strategy, while leveraging the goodwill, brand equity, synergies etc of ITC, providing stability to hotels business, “ ITC Chairman Sanjiv Puri said in the investor call. 

The hotels business will continue to follow asset right strategy and expand through management contracts, particularly for its new brands like Storii and Mementos.

The proposed reorganisation would ensure continued interest of the company in the hospitality business, provide long-term stability and strategic support to the new entity in its pursuit of accelerating growth and sustained value creation as also enable leveraging of cross synergies between the company and the new entity, the company had said in a press statement.

The company’s board, at its meeting held on Monday, noted that the hotels business has “matured over the years” and is well poised to chart its own growth path as a separate entity in the fast- growing hospitality industry with sharper focus on the business and an optimal capital structure, whilst continuing to leverage ITC’s institutional strengths, brand equity and goodwill.