CALCUTTA, July 15: ITC Ltd has decided to go in for external commercial borrowings worth about $100 million (Rs 350 crore) in tranches to fund the expansion of its cigarettes and hotels businesses. The mandate for the exercise is likely to be given to SBC Warburg.

In May this year, the company had announced plans to spend about Rs 1,900 crore over the next few years, most of it for the modernisation and upgradation of its cigarette factories in Saharanpur, Munger, Calcutta and Bangalore.

The company has also made its intentions clear to invest cash surpluses generated by the tobacco division in the hotels business, where it has a strong presence, particularly in the "golden triangle" of Delhi, Agra and Jaipur.

ITC sources confirmed the debt-raising programme and added that the company's debt-equity ratio of around 0.5:1 was at the lowest level in the last ten years. At the end of March 31, 1996, the debt-equity ratio was as low as 0.66:1. With further accretions to reserves in 1996-97, this has gone down further. With a strong balance sheet and a healthy growth in revenues and profits of 15 and 31 per cent respectively, the company is ideally placed to access low-cost funds. ITC chairman YC Deveshwar had gone on record earlier that cigarettes and hotels were ideal foils and investments in these sectors would be progressively stepped up to generate higher profits.

Company sources said performance in the first quarter of the current year had been above par, with net profits growing faster than the 33 per cent achieved in the comparable quarter last year. ITC has already carved out a 67 per cent market share in cigarettes.

In tobacco, the company's strategy has been to expand the market which has grown from 80 billion sticks in 1994 to over 100 billion sticks in 1997. It proposes to invest over Rs 800 crore in its four cigarette factories and its new Bangalore factory "will double ITC's production capacity within two years of commissioning."

In hotels, the company has made substantial investments through its Welcomgroup division and its 74 per cent subsidiary, ITC Hotels Ltd. It is now in the midst of a major expansion by setting up new hotels in Mumbai, Calcutta and Jaisalmer. The expansion will double room capacity to 5,000 by the year 2000.

On the drawing boards are hotels at Chennai, Allahabad, Ahmedabad and Goa. In the Fortune Park Hotels chain, the Fortune Hotel Gemini Park at Chennai is expected to open by the end of 1997.

Besides, ITC sources said, the company is exploring acquisition opportunities apart from the new projects.

In fact, as a part of its overall plan to generate valuable foreign exchange the company also aims to "strengthen the travel and tourism business" to feed its hotels. Besides, it would reinforce international alliances (with ITT Sheraton of USA) to upgrade the business on par with international standards of hoteliering.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.