Target: ₹230

CMP: ₹166.80

Backed by a $58 billion conglomerate, ITC Hotels is India’s 2/4 hospitality chain based on operational hotels/keys. ITC Hotels operates through 6 brands, with differentiated positioning; having a portfolio of ~13k operational keys and ~4.3k keys in pipeline; the upcoming pipeline predominantly includes WelcomHotel (42%) and Fortune (33%) 

With 80 per cent domestic-owned inventory (luxury) and 70 per cent in tier1/metros, ITC Hotels is an opportune play on continued buoyancy in these segments. Improving operational efficiency, asset-light focus (over 90 per cent of pipeline) and favourable operating leverage will drive 450 bps EBITDAM expansion over FY24-28 to about 38 per cent.

Ramp-up of ITC Ratnadipa with about $500 million investment (around 40 per cent of FY24’s capital employed) remains key. F&B presence across over 12 brands, including Bukhara & Dum Phukt, and healthy commercial absorption will ensure revenue buoyancy and reduce cyclicality.

One year target price of ₹230 implies 26x 1yr fwd EV/EBITDA; do not build in valuation convergence to IH (around 25 per cent now vs 21 per cent on TP); though improving RoCE (9 per cent/13 per cent in FY25/28E) and robust FCF generation (₹4,700 crore, FY25-28E after demerger) could leave room for re-rating.

Risks: Slower-than-expected ARR growth and occupancy ramp-up.