Jefferies checks into ITC Hotels, says stock could rally 63% to Rs 280 in bull case scenario

ITC Hotels is a strong number 2 in the hotels space, fairly diversified across metrics and slated to benefit from cyclical recovery in the Hotel sector, said the brokerage.

Newly spun-off entity ITC Hotels shares traded with gained during the afternoon session on February 12, after international brokerage Jefferies initiated coverage on the stock, seeing 63% upside on the stock price in its bull case.

The brokerage issued a 'buy' rating, with a target price of Rs 240 per share on ITC Hotels stock, indicating a 40% upside in its base case scenario. In its bull case scenario, the stock could rally to Rs 280 per share, with an upside of 63% from current levels, said Jefferies.

Jefferies estimates that ITC Hotels' revenue to grow at a CAGR of 15% over FY24-27, with life-for-like hotels revenue growing at 11%. The firm has steadily grown its portfolio of owned hotels, as it added hotels by organic as well as inorganic routes.

Currently, ITC Hotels has portfolio of 25 owned Hotels including 15 ITC brand Hotels, 9 WelcomHotels and 1 Fortune.  ITC Hotels'  asset mix is balanced as of now at 45% owned while 55% is managed. Further, the firm's recent capex projects have depressed returns on the business.

ITC Hotels is ramping up keys via asset light route of management contracts and targets its room count to move from 13,000 to 18,000 by 2029/30.  In the next 5 years, the premium hotel keys would constitute 42% of the total managed portfolio up from 30% today, thus improving richness of its product profile as well, said Jefferies.

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As a result, Jefferies expects increased demand for travel and tourism to sustain over FY24-FY27 and for the firm to report steady growth over next few years.

"We expect industry supply to remain relatively constrained and ITC Hotels to ramp up occupancies of owned hotels driving 9% CAGR in Revenue per Available  Room (RevPAR) for India business and coupled with accelerated scale up in Asset Light driving 16% CAGR in EBITDA for FY24-FY27E," said the brokerage in its base case assumption.

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