Buy ITC HOTEL Ltd for the Target Rs. 190 by Choice Institutional Equities
Resilient Operations Will Keep Long-term Growth Trajectory Intact
Q4FY26 RevPAR growth was muted at 2.6% YoY as West Asia tensions impacted inbound travel, particularly across South India markets. ExResidential EBITDA margin contracted 94 bps YoY to 38.0%. Inbound FTAs are expected to remain subdued until geopolitical tensions ease, leading to lower occupancy and margin pressures in the near term. However, we believe, structural demand tailwinds remain firmly intact in the medium term. Further, pipeline of management contracts is at an all-time high (6,700 keys), supporting continued growth in management fee, while residential income will be an incremental upside lever.
View and Valuation
We cut our FY27E revenue estimate by 7.8% and expect EBITDA margin contraction of 157 bps due to weaker inbound demand amid West Asia tensions and spike in fuel cost. However, FY28E revenue and EBITDA remain broadly in line with our earlier estimate, with recovery expected as geopolitical headwinds normalise while structural tailwinds remain intact. We value the company at ~20x FY28E EV/Adj. Hospitality EBITDA, arriving at a TP of INR 190 (maintained). Our DCF-derived valuation of INR 190/share also provides a sanity check. We, therefore, maintain our ‘BUY’ rating on the stock.
Key Risk to Our Valuation
A potentially prolonged West Asia conflict impacting travel sentiment and supply chains, alongside execution risks such as cost overruns, operational delays and margin pressure from elevated input costs.
Slow Quarter, Impacted by West Asia Conflict
* Q4FY26 ARRs grew 4.7% YoY; however, occupancy dipped ~150 bps, resulting in overall RevPAR growth of just 2.6%, impacted by weaker inbound travel demand
* Revenue grew 18.2% YoY to INR 12.5 Bn; however, ex-Residential, core revenue growth stood at only 6% YoY
* Q4FY26 Residential revenue stood at INR 1.3 Bn
* EBITDA increased 13.1% YoY to INR 4.7 Bn, with a margin of 37.2% (-168 bps YoY, in line with CIE estimate), reflecting fuel cost inflation
* PAT rose 23.1% YoY to INR 3.2 Bn (in line with CIE estimate), with PAT margin expanding 101 bps YoY to 25.3%
* Announced acquisition of a 72-key hotel in Kerala at an EV of INR 2.05 Bn
Expanding Pipeline Positions ITCHOTEL for the Next Growth Phase
FY26 witnessed the highest-ever signings for managed hotels. Thirteen new hotels were opened during the year across business, leisure and spiritual destinations, maintaining an average of more than one launch per month. The company announced the acquisition of The Zuri Kumarakom, Kerala Resort & Spa, a 72-key luxury property spread across 18 acres along Vembanad Lake. The acquisition was an all-cash deal at an enterprise value of INR 2.05 Bn, marking ITCHOTEL’s first owned resort in the state. After renovation and rebranding under the ITC Hotels brand, stabilised revenue from the hotel is expected to be 3x of current revenues (INR ~2 Bn) and be margin-accretive.
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