Target: ₹230
CMP: ₹166.80
ITC Hotels, backed by a $58 billion conglomerate, is India’s 2/4 hospitality chain based on operational hotels/keys. The company operates through 6 brands with differentiated positioning and has a portfolio of around 13k operational keys and 4.3k keys in the pipeline. The upcoming pipeline mainly includes WelcomHotel (42%) and Fortune (33%).
With 80% domestic-owned inventory (luxury) and 70% in tier 1/metros, ITC Hotels is well-positioned to benefit from the continued growth in these segments. The company’s focus on improving operational efficiency, asset-light strategy (with over 90% of the pipeline being asset-light), and favorable operating leverage are expected to drive a 450 bps EBITDAM expansion over FY24-28 to approximately 38%.
The ramp-up of ITC Ratnadipa, with a $500 million investment (around 40% of FY24’s capital employed), is a key factor to watch. The company’s presence in the F&B segment across more than 12 brands, including Bukhara & Dum Phukt, along with healthy commercial absorption, will contribute to revenue growth and reduce cyclicality.
The one-year target price of ₹230 implies a 26x 1-year forward EV/EBITDA multiple. It does not incorporate valuation convergence to IH (approximately 25% now vs. 21% on TP). However, the improving RoCE (9% in FY25, 13% in FY28E) and robust FCF generation (₹4,700 crore, FY25-28E after demerger) could potentially lead to a rerating.
Risks to consider include slower-than-expected ARR growth and occupancy ramp-up.
Published on March 13, 2025.
