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Royalty-like arrangement for ITC Hotels to use ITC brands: Sanjiv Puri on demerger

The CMD also spoke about the structure of the deal and the asset-acquisition strategy for the new entity, among others

July 28, 2023 / 06:47 AM IST

ITC's 40 percent holding was also to give some headroom for growth by bringing in some strategic investors for ITC Hotels, said Sanjiv Puri.

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ITC Ltd. and its new, demerged entity ITC Hotels will have an arrangement through which the latter can use ITC brands for something akin to a royalty, which will be in line with industry standards and which won’t be a huge amount, said Sanjiv Puri in an interaction with analysts.

The Chairman and Managing Director and other senior executives of ITC Ltd. took various questions from the analysts on the asset strategy of the new company and ITC’s plans for its holding in the hotel company, among others.

Also read: ITC hotel demerger Highlights: Interest in the hotel business to continue amid boom in the tourism industry, says Sanjiv Puri

Here are five other interesting takeaways from the interaction.

Why 40 percent stake?

On ITC’s holding 40 percent stake, Puri said that this is to enable the new entity to grow faster than it did in the past. He said that it will have access to all the goodwill, brand assets and so on for its growth and success.

The 40 percent holding was also to give some headroom for growth by bringing in some strategic investors. Later in the interaction, in answer to an analyst’s query, he said that he did not imply that there is an intention (for ITC) to exit (ITC Hotels) completely. It is “never to completely move out of it”, he said.

For ITC investors’ exit

On whether the company will have any arrangement to help investors of ITC get an exit, Puri said that each investor will need to take an independent decision. “We have no arrangement with anyone (to facilitate this),” he said.

“Tourism industry is in good shape and the (investor) interest in this (the new company) will be equal (to that in ITC) if not more… anybody who does not wish to be with it (ITC Hotels), market dynamics will give an exit. We won’t participate in that,” he said.

On ITC Hotels’ balance sheet

In saying that ITC Hotels has access to a strong balance sheet, the senior executive said that he did not mean that the company can access ITC’s balance sheet. “It is that ITC Hotels has a strong balance sheet, starting out with Rs 6,000 crore in net assets and with no debt,” he said. With this the company can go to the market and leverage its balance sheet to raise capital, over and above the cash flows it generates, he added.

On ITC’s EIH Limited holdings

Puri said that he cannot go line by line on the investments but said that all operating investments will move to the new entity.

On asset-right strategy

To questions from analysts on whether the new entity will have a more aggressive asset-acquisitions strategy, Puri replied in the negative. He said that the new entity too will continue to have the asset-right strategy (not asset-zero or asset-light strategies) which is based on management contracts. “If a trophy property comes up, then the board will decide at that point,” he added.

Moneycontrol News
first published: Jul 27, 2023 07:06 pm

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