Buy ITC Hotels Ltd for Target Rs.253 by Elara Capitals
In-line operational performance
ITC Hotels (ITCHOTEL IN) reported largely in -line Q3. Growth in the Hotel business was led by both occupancy (up 200bps YoY) and ARR (up 8.6%). ITCHOTEL recorded real estate sales revenue of INR 815mn and EBIT of INR 265mn. It created a provision of INR 525mn due to change in gratuity -related laws. Growth in ITCHOTEL’s owned portfolio will start from FY28E. Managed portfolio will continue to grow at a healthy pace with +1 ,000 key additions FY27E onwards. Revenue from real estate is expected to scale up as deliveries pick up pace. A 20% correction in ITCHOTELS in the past three months seems overdone and a rebound is overdue. Maintain Buy with a revised SoTP -TP of INR 253.
Managed portfolio – Healthy growth: In Q3FY26, ITCHOTEL expanded its footprint with six new openings: Storii Naina Tikkar (42 keys), Storii Castle Kanota, Jaipur (52 keys), WelcomHotel Bodh Gaya Hotel & Convention Centre (98 keys), Fortune Select Siliguri (70 keys), WelcomHeritage Rishikesh (25 keys), and WelcomHeritage Akashganga Heritage Hills (41 keys). In CY25, the company signed 28 new hotels with ~2,790 keys, up 26% YoY, taking its managed hotel pipeline to 59 properties (~5,700 keys). ITCHOTEL plans to open one hotel per month in the next 24 months as it has a high salience of brownfield assets in the pipeline.
Sapphire Residences supporting revenue visibility: ITCHOTEL has started the handover of apartments at Sapphire Residences, contributing INR 820mn in revenue and INR 260mn in PBT. Handover of apartments should pick up pace in the ensuing quarters, providing phased revenue recognition and enhancing cash flow visibility from the residential segment. ITC Ratnadipa continued to scale up in Q3FY26, with occupancy ramping up and the hotel maintaining its RevPAR leadership in Colombo (1.4x Q3FY26). The property has turned EBITDA positive on YTD basis, reflecting operational traction and strong premium positioning. We expect the hotel to continue driving growth in FY26 ?27, supported by steady demand and an established market presence. However, near -term ARR outlook is soft as the recently -opened 800 -key twin hotel complex (687 keys opened) – the Cinnamon Life at City of Dreams , located within walking distance of ITC Ratnadipa – has a large inventory for the micro market to absorb, which may cap pricing upside despite healthy demand.
Maintain Buy with a lower TP of INR 253: Through FY26 -27, growth in the hotel business will be driven by a scale -up in occupancy at ITC Ratnadipa (operations have started in April 2024), and sale of branded residences at Sapphire Residences , as well as at the recently operationalized hotels (15% inventory operating at <75% occupancy). We lower our estimates for EBITDA and APAT by 14% each for FY26E, by 9% and 5% for FY27E and by 12% and 8% for FY28E respectively as we reduce our growth assumptions for the hotel business and profitability estimates for the real estate business. We maintain Buy with a revised TP of INR 253 (INR 266 earlier) as we roll forward valuations to Q3FY28E. Our TP is based on SOTP, valuing the hotel business at 28x (unchanged) Q3FY28E EV/EBITDA and Sapphire Residences at 1x (unchanged) NAV .
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SEBI Registration number is INH000000933.
