Buy ITC Hotel For Target Rs. 210 by Choice Institutional Equities Ltd
Resilient Domestic Demand Propels Operating Performance
Contribution from retail room segment improved by 500 bps, outpacing MICE+ Weddings. This led to a healthy operating performance in Q1FY27, wherein RevPAR grew 8% YoY to INR 8,380. This outperformance was driven by a strong increase of 300 bps in occupancy level and 3.8% ADR growth. ITCHOTEL continued to outperform average industry RevPAR (Luxury + Upper Upscale & Upscale segments) by 33%. We believe stabilisation of recentlycommissioned assets, rising management fee income, coupled with industry tailwinds will support sustained earnings growth.
View and Valuation
We raise our FY27E revenue estimate by 6.7% and increase our EBITDA margin assumption by 51 bps, reflecting incremental revenue contribution from recent hotel acquisitions and resilient operating performance. We value the company at ~22x FY28E EV/Adj. Hospitality EBITDA of INR 18.46 Bn, arriving at a TP of INR 210 (vs. 190). Our DCF-derived valuation reaffirms our target price, providing a sanity check. Hence, we maintain our “BUY” on ITCHOTEL with an upside of ~21%.
Accelerating Portfolio Expansion across Owned and Managed Hotels
ITCHOTEL continues to implement its asset-right strategy through selective inorganic expansion and accelerated management contract addition. The recently-announced acquisition of Welcomhotel Ahmedabad provides exposure to the city's structurally growing commercial and MICE demand, while Kumarakom Resort & Spa, currently under renovation, strengthens its presence in the luxury leisure segment. We expect both assets to begin contributing to revenue from FY27E. Further, the company signed eight new hotels in Q1FY27, taking its managed hotels pipeline to 74 with over 7,200 keys, providing a healthy visibility on management fee income and long-term growth.
Resilient Core Operations Drive Earnings Beat
* Revenue grew 14.8% YoY to INR 9.4 Bn (beating CIE estimate by 11.4%); core revenue growth stood at 10.1% YoY, resilient amid demand softness
* Q1 “Branded Residences” revenue stood at INR 378 Mn, with Operating Profit at INR 132 Mn (Operating margin of 35%), driven by continued handover of Sapphire Residences
* EBITDA increased 19.5% YoY to INR 2.9 Bn, with margin at 31.2% (123 bps YoY, beating CIE estimate by 312 bps)
* Adj. PAT rose 35.4% YoY to INR 1.8 Bn (beating CIE estimate by 33.9%), with PAT margin expanding 294 bps YoY to 19.3%
* ITCHOTEL announced acquisition of the 130-key Welcomhotel Ahmedabad (under a franchising agreement as present; FY26 Revenue: INR 0.3 Bn) for an Enterprise Value of INR 1.55 Bn
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SEBI Registration no.: INZ 000160131
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