ITC Hotels shares up 14% in 1 month; 5 reasons why it may rise further

SBI Securities has ITC Hotels Ltd as its pick of the week, as the brokerage suggested five reasons to 'Buy' the stock with a potential upside of 16 per cent over the next 12 months. ITC Hotels, the demerged entity of ITC Ltd,  where the FMCG major holds 40 per cent stake, has seen its shares rallying 14 per cent in the past one month against a flattish Sensex. 

The hotelier operates 140 hotels across 90 destinations comprising of 13,000 operating keys. It is targeting a portfolio of 200+ hotels and 18,000+ keys by 2030. Around 43 per cent of the hotel portfolio is owned by ITC Hotels and the balance is managed via franchise model.

SBI Securities suggested a 12-month target of Rs 222.30 on ITC Hotels. On Wednesday, the stock was trading 0.18 per cent lower at Rs 192.30 on BSE. The SBI Securities' target price suggests 15.6 per cent upside over this price.  

Reasonable valuations
SBI Securities said the ITC Hotels stock trades at FY25 and FY26 Bloomberg consensus EV/Ebitda multiple of 33.3 times/26.1 times, respectively, which looks reasonable. 

"Given the attractive growth potential for domestic tourism industry, strong company financials and robust key addition pipeline, we believe ITC Hotels has a long runway to capture the growth opportunities in the tourism industry," it said.

Track record, financials
SBI Securities said ITC Hotels has a track record of strong operating & financial performance. It has delivered strong performance clocking record high revenue and operating profit in FY24, driven by strong growth in RevPAR (Revenue Per Available Room) across segments such as retail, MICE, weddings and marquee events hosted in the country. 

"The ARR (Avg. Room Rate) and occupancy levels have grown sharply from Rs 6,300/54 per cent in FY22 to Rs 12,000/69 per cent in FY24 respectively. It has a net cash surplus with negligible debt on books, thus providing healthy growth opportunity going ahead," SBI Securities said.

Inventory pipeline
The domestic brokerage sees healthy room inventory pipeline for ITC Hotels till 2030. In its note, SBI Securities said ITC Hotels has a robust growth pipeline of 46 hotels with 4,300 keys (including 100 keys at ITC Ratnadipa, Colombo) spread across all segments of Indian hospitality sector. The pipeline is spread across key business and leisure locations of India and Nepal that will further expand its presence in 26 new destinations, SBI Securities noted.

Asset light strategy 
Over the last six years, ITC Hotels has moved to an asset-light business model to achieve scalable growth while optimising capital allocation, SBI Secuirties said.

"Leveraging this strategy, IHL has expanded its presence to tier 2 and 3 cities where demand for premium hospitality is increasing rapidly. The share of keys in the managed portfolio has increased from 53 per cent in FY22 to 57 per cent in 1HFY25," it said.

Established brand
ITC Hotels has invested in creating a pan-India presence with several iconic properties across key business and leisure destinations over the past few years, the brokerage said.

The hotel portfolio is spread across six distinct brands viz., ITC Hotels and Mementos in the Luxury segment, Welcomhotel in the Upper Upscale segment, Storii in the Boutique Premium segment, Fortune in the mid-market to upscale segment and WelcomHeritage in the Heritage segment.