ITC Could Do Just as Well as L&T With Spin-Offs
With a change of guard, a split could be also on the table. While some businesses are yet to scale up, a few like paper could be a candidate
The possibility of a split is not illfounded with L&T setting a strong precedent. It has listed two of its subsidiaries — L&T Infotech and L&T Finance — and in the process created additional shareholder value of ₹ 30,000 crore. The company has plans to spin off its other non-engineering businesses for eventual listing. This will narrow down the conglomerate discount and create better value for existing shareholders.
Besides, the argument of ‘too diverse to handle’ may also gain ground, underscoring the need for each business to have a separate management oversight. Globally, tobacco majors such as Philip Morris and RJR Nabisco divested their foods businesses to exclusively focus on expanding their core areas.
ITC stock hit a new high of ₹ 291.95 on Tuesday. While GST is the trigger in the short term, there is no significant long-term trigger to drive valuations to a fresh high. Investors wouldn’t be unrealistic in expecting it to eventually go ahead with a business split.