Jefferies Recommends Buying ITC Hotels Shares with Strong Growth Outlook

Foreign brokerage firm Jefferies has initiated coverage on ITC Hotels Ltd, the recently demerged hospitality arm of ITC Ltd, with a ‘Buy’ rating. The firm has set a target price of ₹240, anticipating that the stock’s valuation discount compared to Indian Hotels Co Ltd (IHCL) could narrow in the future. ITC Hotels debuted on the BSE and NSE on January 29, 2025.

Why Jefferies is Bullish on ITC Hotels?

• Strong Leadership & Focused Growth

  • The company retains an experienced and long-serving hotel management team.
  • Post-demerger independence is expected to enhance operational efficiency and boost returns.

• Robust Financial Growth Projections

  • EBITDA and PAT CAGR estimated at 16% and 19%, respectively, between FY24-FY27.
  • ITC Hotels is valued at 30x FY27 EV/EBITDA, compared to IHCL’s 37x, offering scope for a valuation re-rating.
  • Currently, ITC Hotels trades at 20x FY27 EV/EBITDA, presenting a 25%+ discount to IHCL.

• Expanding Portfolio & Strong Market Position

  • ITC Hotels is India’s second-largest listed hotel chain with an owner-operator model.
  • It has a net cash balance sheet, diverse brand portfolio, and widespread geographical presence.
  • 140 properties with 13,000+ keys across 90+ locations.
  • Plans to expand to 200+ hotels with 18,000+ keys in the next five years.
  • Increasing managed properties to two-thirds of the total portfolio.
  • Added 30 hotels in 24 months and aims to open one hotel per month over the next two years.

• Revenue & Profitability Trends

  • 10-year CAGR:
    • Revenue: 10%
    • EBITDA: 14.6%
    • EBIT: 18%

1. • FY24 EBITDA Margin: 34.4%, indicating strong profitability.
   • The hospitality business contributed 4.1% to ITC’s total revenue and 3% to EBIT in FY24.
   • Average Room Rate (ARR) surged from ₹7,900 in FY19 to ₹12,000 in FY24 (8.7% CAGR).
   • Revenue Per Available Room (RevPAR) increased from ₹5,200 to ₹8,200 in the same period (57.7% total growth).

ITC Hotels’ Future Outlook

With a strong expansion pipeline, strategic asset-light growth through management contracts, and a solid financial outlook, ITC Hotels is positioned for long-term value creation. Jefferies believes the valuation gap with IHCL will narrow, making ITC Hotels a compelling buy opportunity.

news source by- MNS

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