ITC Hotels shares at Rs 215? JM initiates coverage with 'Sell', sees 12% downside
ITC Hotels has evolved into a leader in the hospitality industry with around 140 properties and 13,500 keys, the domestic brokerage said.
- Aug 25, 2025,
- Updated Aug 25, 2025 1:43 PM IST
JM Financial has initiated coverage on ITC Hotels with a 'Sell' rating, setting a target price of Rs 215. The decision is based on current valuations perceived to be adequately priced, reflecting a 15% discount to IHCL's target multiple. ITC Hotels' valuation stands at approximately 30 times FY27 earnings estimates, leading to the decision to assign a lower valuation multiple of 25 times June 2027 Ebitda.
ITC Hotels has evolved into a leader in the hospitality industry with around 140 properties and 13,500 keys, the domestic brokerage said. A significant portion of its inventory, 60%, is under the luxury segment, including the 'ITC Hotels' and 'Mementos' brands. ITC Hotels, JM said, has a balanced portfolio, with 45% of its hotels owned and the remainder managed, This strategic mix allows ITC Hotels to maintain a strong market presence while diversifying its operational risks, it said.
The company has been implementing an 'asset-right' strategy, moving away from aggressive investment-led growth to optimise capital allocation. This strategy has enabled ITC Hotels to expand its presence into tier 2 and 3 cities, mitigating risks associated with development and execution, JM said adding that the strategy also allows scalable growth while maintaining a strong focus on luxury and upper upscale segments.
ITC Hotels is pursuing an asset-light expansion plan, aiming to increase its footprint to over 20,000 keys by 2030. The proportion of asset-light keys is expected to grow to 65% from the current 55%. Over the past two years, the company has opened 25 hotels, maintaining a momentum of one new hotel per month. The fee business is projected to grow at a 16% CAGR from FY25 to FY28, reflecting the company's strategic focus on sustainable growth.
Despite the ambitious expansion strategies, JM Financial sees growth constraints in the near term, due to the limited new inventory expected until FY28. The company has delivered a 22% CAGR in Ebitda over FY23-25, driven by a 15% CAGR in RevPAR. However, JM Financial anticipates a slower growth rate of 11% in revenue and 13% in Ebitda from FY25 to FY28.
JM's target on ITC Hotels suggests a 12.16% discount to Friday's closing price of Rs 244.85 apiece.
The growth outlook is supported by a 7% increase in average daily rates (ADR) and the ramp-up of ITC Hotels' Sri Lanka asset. However, the growth prospects are considered by JM Financial to be sufficiently priced into the current stock valuation, justifying their Sell rating.
ITC Hotels is financially strong with a debt-free balance sheet and a net cash position of Rs 1,700 crore. The company is expected to generate free cash flow of approximately INR 25 billion over FY26-28, facilitating planned expansions and potential inorganic growth opportunities. This financial robustness provides a solid foundation for future investments.
The company plans to invest Rs 800 crore to Rs 900 crore in three new hotel projects over FY26 to FY30. Despite these investments, the restricted near-term growth potential has prompted JM Financial to initiate coverage with a conservative target price, reflecting the perceived risks and current market valuation.
JM Financial has initiated coverage on ITC Hotels with a 'Sell' rating, setting a target price of Rs 215. The decision is based on current valuations perceived to be adequately priced, reflecting a 15% discount to IHCL's target multiple. ITC Hotels' valuation stands at approximately 30 times FY27 earnings estimates, leading to the decision to assign a lower valuation multiple of 25 times June 2027 Ebitda.
ITC Hotels has evolved into a leader in the hospitality industry with around 140 properties and 13,500 keys, the domestic brokerage said. A significant portion of its inventory, 60%, is under the luxury segment, including the 'ITC Hotels' and 'Mementos' brands. ITC Hotels, JM said, has a balanced portfolio, with 45% of its hotels owned and the remainder managed, This strategic mix allows ITC Hotels to maintain a strong market presence while diversifying its operational risks, it said.
The company has been implementing an 'asset-right' strategy, moving away from aggressive investment-led growth to optimise capital allocation. This strategy has enabled ITC Hotels to expand its presence into tier 2 and 3 cities, mitigating risks associated with development and execution, JM said adding that the strategy also allows scalable growth while maintaining a strong focus on luxury and upper upscale segments.
ITC Hotels is pursuing an asset-light expansion plan, aiming to increase its footprint to over 20,000 keys by 2030. The proportion of asset-light keys is expected to grow to 65% from the current 55%. Over the past two years, the company has opened 25 hotels, maintaining a momentum of one new hotel per month. The fee business is projected to grow at a 16% CAGR from FY25 to FY28, reflecting the company's strategic focus on sustainable growth.
Despite the ambitious expansion strategies, JM Financial sees growth constraints in the near term, due to the limited new inventory expected until FY28. The company has delivered a 22% CAGR in Ebitda over FY23-25, driven by a 15% CAGR in RevPAR. However, JM Financial anticipates a slower growth rate of 11% in revenue and 13% in Ebitda from FY25 to FY28.
JM's target on ITC Hotels suggests a 12.16% discount to Friday's closing price of Rs 244.85 apiece.
The growth outlook is supported by a 7% increase in average daily rates (ADR) and the ramp-up of ITC Hotels' Sri Lanka asset. However, the growth prospects are considered by JM Financial to be sufficiently priced into the current stock valuation, justifying their Sell rating.
ITC Hotels is financially strong with a debt-free balance sheet and a net cash position of Rs 1,700 crore. The company is expected to generate free cash flow of approximately INR 25 billion over FY26-28, facilitating planned expansions and potential inorganic growth opportunities. This financial robustness provides a solid foundation for future investments.
The company plans to invest Rs 800 crore to Rs 900 crore in three new hotel projects over FY26 to FY30. Despite these investments, the restricted near-term growth potential has prompted JM Financial to initiate coverage with a conservative target price, reflecting the perceived risks and current market valuation.