Global investment bank Jefferies has reaffirmed its 'Buy' rating on ITC Hotels Ltd, setting a target price of Rs 210, which suggests a potential upside of 32%. This analysis comes as ITC Hotels shares saw a 2.2% rise on Tuesday, trading at Rs 159.32 apiece, thereby reducing its year-to-date losses to 18.95%.
Jefferies' optimistic outlook is primarily driven by ITC Hotels' strategic pivot towards an asset-light business model. The company aims to increase its proportion of managed keys to two-thirds of its total inventory, up from the current 60%. This expansion plan involves growing its overall inventory from 14,300 to 22,000 keys, a move expected to significantly enhance margins and improve the return on capital employed (ROCE).
Valuation and Potential Risks
The target price of Rs 210 is based on a valuation of 23 times the FY28 (Hotel) EV/Ebitda. However, Jefferies also highlighted several key risks that could impact this projection. These include a potential slowdown in the global economy, the resurgence of issues such as pandemics, challenges in achieving full occupancy for newly developed properties (greenfields), and delays in the ramp-up of management contracts.
Operational Performance and Future Outlook
Operational metrics, particularly at the Sri Lanka property, have shown consistent improvement, contributing positively to the consolidated ROCE. Management anticipates sustained revenue performance, bolstered by robust domestic leisure demand, the wedding segment, and a gradual recovery in business travel. The company notes favorable supply-demand dynamics, especially in supply-constrained metropolitan markets.
Foreign tourist arrivals (FTA) currently account for 30% of business, a moderation from the 35-40% observed before the Middle East crisis. Occupancy rates improved to 76% in Q1, up from 74% in FY26. Notably, two-thirds of the Revenue Per Available Room (RevPAR) growth was driven by Average Room Rate (ARR), with the remaining third attributed to occupancy improvements. The Colombo hotel, in particular, turned profitable and recorded a 400 basis point increase in occupancy during Q1, underscoring the industry's rate-led growth and the potential for further occupancy gains as newer properties mature.