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Hidden Gem ITC Hotels (Reco. – Buy; PT – Rs282)

ICICIdirect Research 14 Aug 2025 DISCLAIMER

Domestic demand-supply remains favourable: More than 50% of the expansion is coming in the Tier 2 and Tier 3, while limited supply is coming in the top cities and metros. With demand expected to remain buoyant, limited supply will help hotels in top cities/metros to clock in higher room rentals in the coming years.

ITC Hotels Occupancy will consistently improve: ITC hotels’ average occupancy rate for owned domestic properties stood at 73% in FY25, which is relatively lower compared to 78-80% occupancy rate driven by large hotel companies in the luxury space. Approximately 20% of the owned/licensed assets (1,089 rooms), launched over the last 5 years, operates at less than 75% occupancy rates.

Domestic RevPar to grow in double digits: In Q1FY26, ITC Hotels domestic RevPar grew by 13% with occupancy ratio improving by 275bps yoy to 73% and ARR growing by 9% in Q1FY26. Demand for luxury hotels will continue in India with strong demand from domestic leisure travel and higher demand from improving foreign tourist arrivals. Hence, we expect RevPar will maintain double digit growth momentum in H2FY26 with occupancy ratio expected to improve by 100-200bps while ARR to grow by 8-10%.

Operating efficiencies to drive margins ahead: ITC Hotels consolidated EBIDTA margins improved by 85bps yoy to 35.3% in Q1FY26. Double digit RevPar growth in the domestic operations and scale-up in ITC Ratnadipa, Sri Lanka will help the EBIDTA margins to consistently improve in the near term. Higher contribution from F&B business (40% contribution to revenues) will further add to the profitability. We expect consolidated EBIDTA margins to improve by 320BPS to 37% over FY25-27E.

View: We expect its revenues/EBIDTA/PAT to grow at CAGR of 15%/20%/29% over FY25-28E.ITC Hotels stock price has corrected by 12% from its recently high providing good entry opportunity. Stock currently trades at 31x/25x its FY26E/27E EV/EBIDTA. We recommend Buy with price target of Rs282.

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