JM Financial has initiated coverage on ITC Hotels with a ‘Sell’ rating due to stretched valuations and restricted near-term growth. The brokerage has a target price of Rs 215 on the stock, implying a downside of over 12% in the next 12 months.
JM Financial on ITC Hotels: Stretched valuations
JM Financial stated that ITC Hotel’s current valuations are stretched, noting that it is priced for perfection at approximately 30 times its FY27 earnings. The target price values the company at 25 times its June 2027 EBITDA, which includes a 15% valuation discount relative to Indian Hotels Company (IHCL), a peer with stronger brand positioning, larger operational scale, and a superior return profile.
JM Financial on ITC Hotels: Restricted near-term growth
A major concern is the limited incremental inventory getting commissioned until FY28. With no new assets expected to be commissioned in the near term (apart from the ramp-up of the Sri Lanka asset), the company’s overall growth profile is anticipated to remain restricted.
JM Financial on ITC Hotels: Optimal occupancy levels
ITC Hotel’s portfolio is operating at an optimal occupancy level of 73%. While this indicates strong current performance, it also implies limited room for significant growth driven purely by an increase in occupancy rates in the immediate future without substantial new capacity.
As a result, JM Financial expects ITC Hotels to report a more modest 11% CAGR in revenue and 13% CAGR in EBITDA over FY25-28. This is a slowdown compared to its impressive 22% CAGR in EBITDA over FY23-25.
JM Financial on ITC Hotels: Robust cash generation already priced in
Despite having a solid, debt-free financial standing and strong cash flow (expected cumulative Free Cash Flow of Rs 2,500 crore over FY26-28), JM Financial believes that “such an outcome is adequately priced in at current valuations.” This much cash flow could fund expansion and inorganic opportunities, suggesting that potential benefits from its financial strength are already reflected in the stock price, leaving little upside.
JM Financial on ITC Hotels: Sri Lanka property gets commissioned after substantial delays
ITC Hotels’ first investment in Sri Lanka, ITC Ratnadipa, was finally launched in CY24. 250 rooms became operational in phase 1, and the balance inventory was opened at the start of FY26. The asset has already reached an EBITDA positive level, and ITC Hotel is optimistic about achieving 65% occupancy by FY27. However, it is unlikely to contribute significantly in the ongoing financial year.