What happens when hotel demand grows faster than the number of new rooms being added? For companies operating in India’s hospitality sector, that gap can have a direct impact on occupancy, room rates and revenue.
The global brokerage house Jefferies has highlighted this trend while reviewing ITC Hotels and Leela Hotels, assigning target prices of Rs 210 and Rs 675, respectively. The targets imply potential upside of around 32% for ITC Hotels and 25% for Leela Hotels.
There is a key difference in their strategies. While ITC Hotels is leaning further towards an asset-light model, Leela is building a more ownership-led pipeline.
Let’s take a look at what the brokerage house is saying –
Jefferies on ITC Hotels
For ITC Hotels, one of the biggest changes is happening in the way it adds new rooms.
According to the Jefferies report, the company is gradually moving towards a portfolio where around two-thirds of its rooms are managed properties. Currently, managed rooms account for about 60% of the portfolio.
The company aims to increase its total room inventory from around 14,300 to 22,000 rooms. At the same time, owned rooms are expected to increase from about 5,700 to 7,500 between FY26 and FY31.
Managed hotels require much less capital than owned properties. They can also generate management fees without the company having to invest the same amount in building the entire hotel.
“Owned hotels will continue to account for over 90% of revenue, managed properties deliver significantly higher margins and require minimal capital, supporting superior ROCE,” Jefferies said.
Hotel demand is still running ahead of supply
According to the Jefferies report, hotel demand growth is estimated at around 10%, compared with supply growth of around 9-9.5%. The gap is even more relevant in major cities where acquiring land for new hotels is difficult.
ITC Hotels has also seen its occupancy improve. The brokerage report noted that the occupancy reached around 76% in the first quarter, compared with about 74% in FY26.
The brokerage noted, “Mgmt believes the industry remains primarily rate-led and sees further occupancy upside as newer properties mature.”
Domestic leisure travel, weddings and corporate travel are expected to remain important demand drivers.
Jefferies on Leela Hotels
The company has an announced pipeline of around 1,100 rooms, with a larger portion linked to owned assets and joint ventures.
According to Jefferies, the company is also looking at markets where its luxury hotel presence remains limited.
The company is targeting around Rs 20 billion in EBITDA by FY30. Jefferies said management sees visibility for around Rs 18-19 billion based on existing projects and expected growth.
“Management remains constructive on India’s luxury hospitality, driven by domestic tourism more than offsetting FTAs & demand exceeding supply growth,” added Jefferies report.
Luxury hotels have another growth lever
For Leela Hotels, Food and beverage, wellness facilities, clubs and other non-room businesses are becoming increasingly important. According to the brokerage report, food and beverage already contributes around 35-40% of gross revenue.
The company has also added new outlets and is developing wellness facilities in Bengaluru and Coorg.
“Non-room revenues, a meaningful growth driver,” Jefferies noted in its report.
The brokerage also highlighted the potential for a recovery in international travel. Foreign guests currently account for around 40-50% of Leela’s mix, below historical levels.
What investors need to watch
ITC Hotels is focusing on adding rooms through management contracts while selectively investing in owned properties. Leela, meanwhile, has a more ownership-led pipeline backed by capital support and is looking to expand its luxury footprint.
Jefferies expects the supply-demand balance, domestic travel and new hotel additions to remain key factors for both stocks.
Disclaimer: This article is based on research reports from one or more brokerage firms and is for informational purposes only. The views, target prices, and recommendations expressed are those of the respective brokerage firms and do not reflect the official policy or position of Financial Express. This should not be construed as an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a SEBI-registered financial advisor before making any investment decisions.