The Board of FMCG major ITC on July 24 gave in-principle approval for the demerger of its hotels business.

Under the new scheme, the company will hold a 40% stake, and the company’s shareholders will have the rest.

The company said in a release, “The scheme of arrangement shall be placed for approval of the Board at its next meeting to be convened on August 14, 2023. Appropriate announcements and public disclosures in accordance with the SEBI Listing Regulations and other applicable laws will be made as necessary,”

ITC has over 11,600 keys and 120 hotels across 70 locations.

This demerger can trigger a fresh rally for the stock, nearly gaining over 50% this year.

The hotel business has contributed less than 5% of ITC revenues and EBIT over the last decade. However, the segment has accounted for over 20% of the company’s capital expenditure.

The company recently released its Annual Report for FY 2022-23, showcasing impressive financial results with a 17.6% growth in revenue to Rs 69,480.89 crore.

The company’s Profit After Tax also stood at Rs 18,753.31 crores, a significant increase from Rs 15,057.83 crores in the previous year.

Investors and analysts have always been concerned about the high capital expenditure of the hotels and restaurants business and its subpar returns.