Steady performance in lean business quarter
About the stock: ITC Hotels, established in 1975, is the second largest hotel company in India with 13,469 keys in 90+ destinations. Post its demerger into separate entity, the company got listed on bourses in Feb,25
Q2FY26 performance: Consolidated revenues grew by 8% YoY to Rs.839.5cr in Q2FY26 driven by 7% growth in the standalone revenues and 14% YoY growth in the subsidiaries revenues. Domestic RevPar grew by 9.5% YoY to Rs.8,100/night while ITC Ratnadipa – Sri Lanka RevPar grew by 1.6x YoY, witnessing a fast scaleup since its launch in Apr,24. Consolidated EBIDTA margins improved by 200bps YoY to 29.3%; operating EBIDTA grew by 16% YoY to Rs245.8cr. Higher other income at Rs.45.3cr resulted in 72% YoY growth in the reported PAT to Rs.133.3cr.
Investment Rationale:
• Steady RevPar growth in seasonally weak quarter; momentum to improve in H2: ITC Hotels’ domestic RevPAR grew by 9.5% YoY to Rs.8,100/night driven by 6.4% YoY growth in ADR which stood at Rs.11,250 while occupancy improved by 200bps YoY to 72% in Q2FY26 from 70% last year. The company continued to command RevPAR premium of 40% over the industry. Standalone room revenue grew by ~8% in Q2FY26. ITC Ratnadipa – Sri Lanka RevPar grew by 1.6x in Q2FY26. Overall consolidated RevPar grew by 11% in Q2FY26. Standalone RevPar grew by 11% to Rs8,000/night in H1FY26. In view of strong room demand driven by buoyancy tourism and good momentum in the foreign tourist arrival, RevPar growth will be much better in H2FY26. Overall, we expect consolidated room revenue to grow by 15% in FY26 with standalone room revenues grew by 10-11%, while ITC Ratnadipa to incrementally add to the topline.
• EBIDTA margins to consistently improve in the near term: ITC Hotels consolidated EBIDTA margins improved by 200bps yoy to 29.3% in Q2FY26 and by 150bps YoY to 29% in H1FY26. Despite lean business period and lower growth in F&B segment, standalone EBIDTA margins improved by 62bps YoY to 30.8% in Q2FY26 driven by better operating efficiencies. ITC Ratnadipa remained EBIDTA positive with improved profitability. Double digit RevPar growth in the domestic operations and scale-up in ITC Ratnadipa, Sri Lanka will help the EBIDTA margins to consistently improve in H2FY26. Higher contribution from F&B business will further add to the profitability in H2.
• Focus on room expansion through capital efficient model: As of Q2FY26, the company has 207 hotels with 19,535 keys. 146 hotels with 13,646 keys are operational while 61 hotels with 5,889 keys are in pipeline. During the quarter, it signed 7 hotels with ~800 keys across key cities in India, which are largely under the management contract. It has 2 ongoing greenfield projects in Puri (118 Keys) and Vishakhapatnam (200 Keys) which are expected to completed in FY28 and FY30 respectively. The company launched a new premium brand to its portfolio “EPIQ’, aligning with its premiumisation strategy (to add 1,000 rooms under the brand).
Rating and Target Price: ITC Hotels registered resilient performance in H1FY26 despite geopolitical headwinds and high rainfall putting break on the business. We expect momentum to be much better in H2FY26 in view buoyant industry outlook. Recent correction in the stock price provides good entry opportunity. We maintain Buy with an unchanged price target of Rs282 (valued at 32x FY27E EV/EBIDTA).
