ITC scouts alternate structures for hotel biz; stock up 50% so far in 2022

Shares of ITC  hit fresh multi-year high of Rs 330.55, up 1 per cent on the BSE in Thursday’s intra-day trade. The spike comes after reports emerged that the company plans to explore alternate structures for their hotel business. ITC Hotels could soon be a separately listed entity, carved out of the parent cigarette-to-branded packaged food conglomerate, reports suggested.

ITC would pursue the “asset-right” strategy for its hotel business to ensure that the diversified conglomerate remains competitive and contemporary, and continues to deliver superior performance, the PTI reported quoting its chairman Sanjiv Puri.

The stock price of ITC surpassed its previous high of Rs 329.90 touched on September 6, 2022. It inches towards its record high level of Rs 353 hit on July 3, 2017. Thus far in the calendar year 2022 (CY22), ITC has outperformed the market by surging 50 per cent, as compared to 0.44 per cent rise in the S&P BSE Sensex.

In its FY22 annual report, the company said that the ‘Asset-Right’ strategy of ITC Hotels is an important vector of the ITC Next strategy. It focuses on sweating existing assets, increasing footprint of management contracts and creating additional revenue streams to engender the next horizon of growth and value creation and provide best-in-class consumer experience.

ITC’s Hotels Business remains amongst the fastest growing hospitality chains in the country with 113 properties and over 10,700 rooms under four distinct brands – ‘ITC Hotels’ in the Luxury segment, ‘Welcomhotel’ in the premium segment, ‘Fortune’ in the Mid-market to Upscale segment and ‘WelcomHeritage’ in the Leisure & Heritage segment.

Meanwhile, ITC continues to strengthen its competitive position across cigarette and FMCG segments driven by high innovation intensity and distribution reach. The three non-FMCG divisions – Paper, Hotel  and Agri – clocked the highest-ever quarterly revenue along with healthy EBIT growth for the quarter ended June 2022 (Q1FY23).

Analysts at JP Morgan expect FY23 to be a solid year for the cigarette business aided by good volume recovery (market-share-gain-led, stable pricing aids better mix) and no material cost pressure. Other FMCG divisions, too, should be able to navigate inflationary headwinds via prudent pricing, low demand elasticity (higher foods salience), and significant cost control, analysts said.

ITC is a leading cigarette manufacturer in India, with a more than 75 per cent volume share, enjoying significant competitive advantages.

“Over the long-term, growth rates could benefit from low share of cigarettes in overall tobacco consumption, ITC’s dominant positioning, high barriers to entry, and improving profitability/returns for its non-tobacco businesses. Normalcy is setting in for the cigarette business with the markets re-opening as Covid-19 abates, along with a stable pricing environment (in the absence of tax hikes),” the brokerage firm added.