Add ITC Hotels Ltd For Target Rs. 235 By JM Financial Services
Resilient operating performance; upgrade to ADD
ITC Hotels’ (ITCH) performance was ahead of our expectation, driven by better-than-expected occupancy in its standalone business (72% vs. our estimates of c.70%). Consol. revenue was inline and grew 8% YoY, aided by 11% growth in RevPAR; F&B revenue grew slower at 5% YoY. Despite seasonal softness and the negative impact of heavy monsoon rains on the overall travel sentiment, EBITDA grew 16% YoY to INR 2.5bn (vs. JMFe: INR 2.3bn, 8% beat), as EBITDA margin expanded by ~200bps to 29.3% (JMFe: c.27%). Healthy growth in room rates, higher fee income and cost interventions led to this expansion in margin. ITC Ratnadipa witnessed 1.6x YoY growth in RevPAR and was EBITDA positive during 2QFY26. ITCH announced the launch of a new upper upscale brand: “Epiq Collection”, with two inaugural assets – an under-development, owned hotel in Puri and a managed property in Tirupati. Going forward, we expect ITCH to report 11%/14% CAGR in revenue and EBITDA over FY25-28E aided by c.7% growth in ADR and ramp-up of the Sri Lanka asset. We roll forward to Mar’27E with a new TP of INR 235 and upgrade the stock to ADD from REDUCE.
* Healthy operating performance:
ADRs for the quarter grew by 6% and occupancy expanded by 254 bps to c.72%, resulting in overall standalone RevPAR YoY growth of 9% to INR 8,100. Consol. RevPAR registered double-digit growth of 11% during the quarter over last year. F&B revenue grew 5% on a high base, given that wedding segment revenue was relatively lower on account of lesser auspicious dates in the quarter. During the quarter, ITC Ratnadipa continued to demonstrate market leadership in terms of RevPAR and was EBITDA positive. Sri Lanka’s hospitality sector is experiencing strong resurgence and is emerging as one of the fastest growing tourism markets in Asia, as foreign tourist arrivals in 9MCY25 have surpassed 2018 levels of 1.73mn, representing a complete recovery post - COVID.
* Revenue and EBITDA ahead of our estimates:
Consol. revenues were inline and grew 8% YoY, aided by 11% growth in RevPAR while growth in F&B revenue was lower at 5% YoY. Despite seasonal softness and the negative impact of heavy monsoon rains on the overall travel sentiment, EBITDA grew 16% YoY to INR 2.5bn (vs. JMFe: INR 2.3bn, 8% beat), as EBITDA margin expanded by ~200 bps to 29.3% (JMFe: c.27%). Healthy growth in room rates, higher fee income and cost interventions led to this expansion in margin.
* Updates on the pipeline:
ITCH currently has a portfolio of 207 hotels - 146 operational and 61 in the pipeline. ITCH signed new hotels in Patna, Hyderabad, Tirupati, Wayanad, Nellore, and Mantralayam, reinforcing its presence in high-potential markets. During the quarter, it marked its entry into Kerala with the launch of Fortune Kochi, and future openings are planned in Wayanad (Storii) and Kakkanad (Fortune). ITCH also announced the launch of a new upper upscale brand: “Epiq Collection”, with two inaugural assets – an under-development owned hotel in Puri and a managed property in Tirupati. The company aims to add ~1,000 keys under the Epiq Collection over the medium term, focusing on high-quality conversions and new builds.
* Upgrade to ADD with a Mar’27 TP of INR 235:
Going forward, we expect ITCH to report 11%/14% CAGR in revenue and EBITDA over FY25-28E aided by c.7% growth in ADR and ramp-up of the Sri Lanka asset. We roll forward to Mar’27E with a new TP of INR 235 and upgrade the stock to ADD from REDUCE.
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SEBI Registration Number is INM000010361
