International Brokerage Firm Estimates ITC Hotels Stock May Rise 63%

ITC Hotels Stock

Jefferies Projects 63% Upside for ITC Hotels Stock, Initiates Coverage with ‘Buy’ Rating

International brokerage firm Jefferies has launched coverage on ITC Hotels, offering a bullish outlook with a ‘buy’ rating on the stock. The firm has set a target price of Rs 240 per share, which represents a 40% upside from the stock’s current market price.

Moreover, in a more optimistic scenario, Jefferies sees the stock potentially rising to Rs 280 per share—marking an impressive 63% increase.

These projections are part of Jefferies’ comprehensive analysis of the company’s future growth prospects, fueled by strong revenue growth expectations and a strategic expansion plan that positions ITC Hotels as a key player in India’s evolving hospitality market.

Strong Growth Prospects and Revenue Expectations

Jefferies’ optimistic outlook is largely driven by its forecast that ITC Hotels will experience a compounded annual growth rate (CAGR) of 15% in revenue from fiscal year 2024 to 2027.

This forecast aligns with the broader recovery and growth trajectory of the Indian travel and tourism industry, which has been showing resilience post-pandemic.

ITC Hotels, a subsidiary of ITC Ltd., is expected to capitalize on this resurgence by scaling its operations and expanding its presence across key markets in India and potentially abroad.

The Indian hospitality sector has witnessed rapid growth over the past few years, with increasing domestic and international tourist arrivals, higher demand for premium and luxury accommodations, and a burgeoning middle class that is driving travel consumption.

These macroeconomic factors set a favorable stage for ITC Hotels to capitalize on this growth. With a well-established brand portfolio and a focus on delivering superior customer experiences,

ITC Hotels is well-positioned to benefit from the ongoing boom in the tourism and hospitality sector.

In addition to strong demand, Jefferies anticipates that ITC Hotels will further strengthen its financial position due to a series of strategic investments, including new property acquisitions and hotel refurbishments.

These efforts are expected to enhance the company’s operational efficiency and revenue generation capabilities, which will support its long-term growth prospects.

A Diversified Portfolio and Strategic Expansion

Currently, ITC Hotels operates a diversified portfolio of 25 hotels, which include 15 under the prestigious ITC brand, 9 Welcome Hotels, and 1 Fortune Hotel.

The company’s asset mix is balanced, with approximately 45% of its hotels owned and 55% managed. This diverse mix gives ITC Hotels a flexible and scalable business model, allowing the company to adapt to various market conditions and operational requirements.

Jefferies notes that the company is actively pursuing an asset-light strategy to expand its footprint. This involves a strong focus on management contracts, which allow the company to increase its number of rooms without incurring significant capital expenditures.

Under this model, ITC Hotels can grow its portfolio while minimizing financial risk. As part of its long-term strategy, ITC Hotels aims to increase its total room count from 13,000 to 18,000 by 2029/30, signaling a robust expansion trajectory.

This strategic shift towards management contracts and a more asset-light model allows ITC Hotels to pursue faster growth with lower upfront capital expenditure, enhancing both its profitability and return on investment.

In the longer term, this strategy will not only expand the company’s footprint but also enable it to build a more profitable and efficient hotel network.

Growth in Premium Segment and Product Diversification

Another major growth catalyst highlighted by Jefferies is the company’s focus on increasing its premium room offerings.

Currently, premium rooms make up approximately 30% of ITC Hotels’ total inventory. However, over the next five years, the company plans to boost this proportion to 42%.

This shift will improve the company’s overall product profile, as premium and luxury segments are generally more profitable than budget or mid-range offerings.

Jefferies projects that as ITC Hotels increases its focus on high-end offerings, the company’s overall revenue per available room (RevPAR) will increase, driving both top-line growth and higher profit margins.

The firm believes that with rising disposable incomes in India and a strong demand for luxury services, ITC Hotels’ premium rooms will be a key contributor to its growth in the next five years.

Additionally, ITC Hotels is expected to diversify its offerings further, expanding its portfolio of branded resorts, boutique hotels, and leisure properties.

As consumers become more discerning in their travel choices, there is an increasing demand for unique and differentiated experiences.

By tapping into this demand, ITC Hotels can continue to build on its brand reputation and cater to an affluent customer base.

Capital Expenditure and Potential Risks

While Jefferies remains positive about the company’s growth prospects, it acknowledges that ITC Hotels’ recent capital expenditure projects may put pressure on the company’s near-term profitability.

As the company invests heavily in expanding its portfolio and upgrading its properties, it is expected to see reduced returns in the short run.

These investments are critical to ITC Hotels’ long-term success, but the firm will need to carefully manage its capital allocation to ensure it balances growth with profitability.

Jefferies also points out the risk that any slowdown in domestic or international tourism, shifts in consumer preferences, or adverse economic conditions could negatively impact ITC Hotels’ performance.

However, the firm remains confident that the company’s strong brand presence, diversified portfolio, and long-term growth strategy will help mitigate these risks over time.

Sustained Demand for Travel and Tourism in India

Looking at the broader economic landscape, Jefferies expects continued growth in the Indian travel and tourism sector, which is a key driver of ITC Hotels’ success.

As India becomes one of the world’s largest travel markets, driven by both domestic and international tourism, demand for high-quality accommodation services is expected to grow significantly.

The government’s focus on improving infrastructure, including airports, roads, and transportation networks, will further boost tourism growth.

Additionally, the rise of the middle class and the increasing trend of corporate travel in India present significant opportunities for ITC Hotels to capture a larger share of the market.

Final Thoughts: A Promising Future for ITC Hotels

Jefferies’ analysis of ITC Hotels reflects a promising future for the company, with a strong outlook driven by revenue growth, strategic expansion, and an enhanced product offering.

The brokerage firm’s target price of Rs 240 per share and the potential for the stock to rise by 63% in a bullish scenario highlight the company’s growth potential in the coming years.

While there are risks associated with capital expenditures and broader economic conditions, ITC Hotels’ diversified portfolio, asset-light growth strategy, and focus on the premium segment position it well to capitalize on the growing demand for hospitality services in India.

With Jefferies projecting a robust revenue growth rate and a solid path to increased profitability, ITC Hotels appears to be an attractive investment opportunity for long-term investors looking to capitalize on the Indian hospitality sector’s expansion.