Jefferies Initiates 'Buy' On ITC Hotels On Strong Market Position And Growth Potential
ITC Hotels stock currently trades at a 25% discount to Indian Hotel, but Jefferies believes this discount will narrow over time.
Jefferies has initiated a 'Buy' rating for ITC Hotels with a target price of Rs 240, highlighting the company’s strong franchise, diversified brand portfolio, and robust financial position.
ITC Hotels, the second-largest listed hotel chain in India, has a diversified portfolio that spans across luxury, upper upscale, and mid to upscale segments, with well-established brands such as ITC in the luxury space, WelcomeHotel in the upper upscale category, and Fortune in the mid-to-upscale market.
The company’s strategic focus on expanding its room inventory through management contracts and ramping up underutilised greenfield projects is expected to drive growth. This according to the brokerage will help the company achieve its goal of expanding its room count from 13,000 to 18,000+ by 2029/30.
Amid favourable tailwinds for the hotel sector, Jefferies expects ITC Hotels' occupancy rates to increase from approximately 69% in financial year 2024 to 75% by financial year 2027, with a RevPAR CAGR of 9% over the same period. Notably, the company’s Sri Lanka project, which includes a 352-key hotel, is projected to contribute positively to the overall asset mix.
ITC Hotels further strengthened its offering by launching two new premium brands—Storii and Mementos—in financial year 2022. The company has been expanding its geographical footprint, especially in Tier 2 and Tier 3 cities, though it continues to have a significant presence in metro and Tier-1 locations, where around 80% of its owned room inventory is concentrated.
With a debt-free balance sheet and substantial cash reserves, ITC Hotels is positioned for sustained growth. Jefferies projects Ebitda and profit to grow at CAGRs of 16% and 19%, respectively, over financial year 2024 and financial year 2027, and anticipates an improvement in return on capital employed from 9% in financial year 2024 to 12% by financial year 2027, driven by key expansions and operational efficiency.
The brokerage in its note on Wednesday pointed that the stock currently trades at over 25% discount to Indian Hotel Ltd. However, Jefferies believes this discount will narrow over time.
