Muted Q4; long term growth prospects intact; valuations attractive
About the stock: ITC Hotels, established in 1975, is the second largest hotel company in India with 14,070 keys in 90+ destinations. Q4FY26 performance: Consolidated Revenues (ex-residential) reported 6% YoY growth to Rs.1124cr in Q4FY26. Consolidated RevPAR witnessed 3% YoY growth the Rs.11700/night with ADR growing by 5% YoY to Rs.15,500/night while occupancy declined by 160-170bps (as per our calculation) impacted by West Asia crisis. ITC Ratnadipa turned EBITDA positive on full year basis. Consolidated EBITDA margins (ex-residential) stood at 38.2% declining by 71bps YoY in Q4FY26. EBITDA grew by 4% YoY to Rs.429cr. Reported PAT witnessed 7% YoY growth to Rs.276cr in Q4FY26.
Investment Rationale:
• Muted performance (ex-residential) in Q4; Q1FY27 expected to be better on low base: ITC Hotel’s consolidated hotel segment revenues reported mid-single digit growth of 6% YoY to Rs.1104cr in Q4FY26 impacted by the West Asia crisis. RevPAR grew by 3% YoY with ADR growing by 5% YoY and occupancy declining by ~160-170bps YoY to 74%. Q1FY27 is expected to report good growth in the hotel segment due to low base of Q1FY26 (impacted by Operation Sindoor). Further, H2FY27 is expected to witness further recovery if the geopolitical conditions subside led by line-up of MICE events and weddings. ITC Ratnadipa continues to sustain RevPAR leadership with 1.5x YoY RevPAR growth and is expected to contribute meaningfully to revenues over the upcoming quarters. Overall, we expect consolidated room revenues to grow at 11% CAGR over FY26-28E with standalone room revenues (room addition @5% CAGR) and ITC Ratnadipa growing at 11% and 12% CAGR over FY26-28E.
• ITC Hotels announces acquisition of Zuri Hotels and Resorts; to reposition it to luxury hotel: ITC Hotels announced the acquisition of Zuri Hotels and Resorts which owns the 72 keys, The Zuri – Kumarakom , Kerala Resort and Spa for an enterprise value of Rs.205cr (debt-free and cash- free basis). It aims to rebrand and reposition the hotel under its luxury brand “ITC Hotels”. This acquisition is value accretive in nature considering luxury positioning in a limited inventory market with higher ADR growth potential. This also helps the company to diversify its revenue streams across leisure, wellness, weddings and MICE space providing incremental levers for revenue growth and margin expansion over the upcoming years.
• Long Term growth enablers in place; Strong Cash position to aid accelerated growth: ITC Hotel’s cash and cash equivalents stood at ~Rs.1600cr in FY26 which enables it to invest incrementally towards new renovations and greenfield projects. The management has set out target of ~8-10% of its revenues for capital investments such as renovations and greenfield projects. These projects help the company improve its ADR growth and occupancy thereby helping it sustain RevPAR leadership in the industry. As a result of surplus, the company continues to add strategic land bank for its future greenfield projects while also sourcing for attractive inorganic opportunities such as M&A and acquisitions which provide further lever for revenue growth and margin expansion ahead. With majority of additions in the asset light space, we expect the strong cash position to continue over the upcoming years.
Rating and Target Price: We maintain Buy with a revised price target of Rs.220 on SoTP basis. It is trading at 18x/15x its FY27E/FY28E EV/EBIDTA.
