Analysts, however, didn’t read too much into the listing day disappointment and are largely positive on ITC Hotels’ prospects. The company’s market cap is currently at around ₹34,600 crore, which brokerages estimate has the potential to rise to anywhere between ₹42,500- ₹62,000 crore.
In a note last month, global brokerage Jefferies put a ‘buy’ rating on the stock, with a target price of ₹240 in its base case scenario and a bull case target of ₹280.
Jefferies estimates that ITC Hotels’ revenue will grow at a healthy compound annual growth rate of 15% over the FY24-27 period, noting that the company has steadily expanded its portfolio through both organic and inorganic routes. “Amid sectoral tailwinds, we expect ITC Hotels’ India occupancy to ramp up from 69% in FY24 to 75% in FY27,” it added.
The key strength of ITC Hotels post-demerger and listing is the value creation for shareholders, said Nikhil Shah, senior director, capital markets and investment services—hospitality, at real estate company Colliers India. “While market conditions have been volatile since its listing, the stock holds strong long-term growth potential. Additionally, the company has a presence across segments, from midscale to luxury to experiential stays, which enhances its market positioning,” he said.
Shah added that since ITC Hotels is aiming to increase its average occupancy to 75% over the next five years while growing Ebitda (earnings before interest, taxes, depreciation, and amortization) from the current ₹1,000 crore to ₹1,500 crore, the company’s market capitalization could potentially double to ₹70,000 crore.
Industry veteran Vikramjit Singh, who is also the founder of Gurugram-based Alivaa Hotels, concurs. “There could not have been a better time [for ITC Hotels] to demerge than now because the next few years will be the golden period for the industry,” he said.
Asset-light strategy
Amid a flurry of expansion by its rivals in the hospitality industry, ITC Hotels, with a ₹1,500 crore cash reserve, is targeting growth in both owned and managed properties.
It plans to add about 100 rooms to its sole international property, in Colombo, and 200 or so rooms in its owned hotels in India, including 100 in Puri by FY28 and another 100 in Bhubaneswar. The plans have been loosely phrased, so the money could also be deployed to build hotels or refurbish some existing, weathered assets.
The chain has said it expects to grow at a pace of one hotel opening per month for the next 24 months across both owned and managed hotels. The five-year vision is to reach 200 hotels with 18,000 rooms, with just a third of those in its owned portfolio. The rest will be managed.
Industry experts believe the company should also pursue strategic acquisitions to accelerate growth. “While ITC Hotels has accelerated its hotel signings, it may need to adopt an inorganic growth strategy through acquisitions to enhance shareholder value and meet market expectations,” said Colliers’ Shah.
Clearly, ITC Hotels sees managed properties driving its growth in the years to come. Indeed, one market consultant Mint spoke to said that investors may have a long wait before they see the company’s owned-hotel growth pipeline become operational. “The markets are a bit disappointed that they did not come up with a growth strategy for their owned hotels portfolio. They have a long runway ahead of them when it comes to domestic growth. But investors have been left guessing if they have much of a strategy beyond metros for the flagship ITC branded hotels,” said the consultant, on condition of anonymity.
To be sure, ITC Hotels has a fairly widespread presence within India. The company’s journey began in 1975 with the acquisition of a hotel in Chennai (the Chola, on Cathedral Road). Today, according to the chain’s website, its footprint encompasses 140 (including 29 in the pipeline) properties across over 90 destinations.
The cautious approach to overseas expansion raises questions about ITC’s strategy. Many of its peers are betting big on the fact that Indians are travelling abroad like never before, with over 30 million departures in 2024.
Much like rival Indian Hotels, it has a finger in every pie, albeit on a smaller scale, with most of the properties falling in six segments. The luxury segment is led by ITC Hotel (17 properties, according to the website), while Welcomhotel (27 properties) caters to the five-star category. Fortune (55) serves the mid-market to upscale segment, while WelcomHeritage (3) focuses on heritage leisure stays.
Mementos (2) is the company’s newly launched management contract arm, whereas Storii (7) is its boutique property collection. Barring one property in Sri Lanka, the company has no international presence to speak of, unlike its rivals IHCL and even the much smaller, The Oberoi group, which have a more extensive global presence.
This cautious approach to overseas expansion raises questions about ITC’s strategy. Many of its peers are betting big on the fact that Indians are travelling abroad like never before, with over 30 million departures in 2024. First-time Indian travellers may find comfort in staying with brands they recognize abroad. But expanding internationally comes with challenges, from navigating complex regulations and building brand equity to managing diverse consumer preferences.
ITC Limited, the company’s parent, also owns a part of Oberoi group’s East India Hotels and has a stake in The Leela Mumbai, which it increased in December.
Leading the charge
Until now, ITC Hotels has made its way forward clinging to its parent’s coattails. While the company accounts for just 5% of the overall group revenue, it has accounted for about 20% of the capex of the parent company, according to its balance sheet.
Now, as it attempts to chart its own course forward, all eyes will be on Anil Chadha, the man entrusted with the job. Chadha, who took over as managing director (MD) of ITC Hotels on 1 January, prefers to let the numbers do the talking. For the past two years, he has kept a low profile at industry events, making key announcements before slipping away.
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Chadha joined ITC Limited (ITC) in 1992 and has spent almost his entire career with the conglomerate’s hotel division, heading key properties in New Delhi, Agra, Kolkata, Bengaluru and Chennai. The new MD follows in the footsteps of SSH Rehman, Nakul Anand and Dipak Haksar, who built the company up over the years.
“The hotel company has had a lot of stalwarts working for it in the past, which is why they are where they are today in terms of the hospitality product they offer at their big-ticket hotels,” said Rattan Keswani, a veteran in the hospitality industry with leadership experience at Lemon Tree Hotels and The Oberoi Group.
Chadha will have to take that legacy forward.
For now, the leadership remains tight-lipped about its plans other than those announced in its listings to the stock exchange. Chadha is reputed to be one of the best general managers of Mumbai’s ITC Grand Central. Ironically, the Grand Central hotel remains a part of ITC Ltd, and was not part of the demerger.
Not surprisingly, the tightlipped Chadha chose not to participate in this story. His office also did not respond to a detailed questionnaire sent by Mint.
Industry observers say the new MD’s biggest challenge would be to sustain the business as a standalone entity rather than rely on the parent entity, which has been funding it so far.
Expansion spree
In a sense, with its rivals on an expansion spree, ITC Hotels has no choice but to step on the growth pedal. Over the last couple of years, there has been a flurry of activity across the larger hospitality sector, with more to come.
The industry is gearing up for a massive expansion, with over 100,000 new rooms set to be added by 2029, pushing the country’s total inventory past 300,000, according to the India Hotel Market Review 2024 by Horwath HTL, a consulting firm. The boom will be fuelled by rising disposable incomes, new airport projects, and surging demand for religious and leisure travel.
Last year, Marriott International signed a record 42 deals and added 7,000 rooms to the region’s development pipeline while IHCL unveiled its first Taj in Odisha (in Puri). Marriott, meanwhile, unveiled its first Moxy (in Bengaluru).
This year, French major Accor group’s Fairmont brand is set to launch in Mumbai, while Hyatt Regency is expected to open in the city later in the year. The airport at Navi Mumbai will also open in the coming weeks, which should lead to an increase in demand for the foreseeable future. Minor Hotels-run Anantara opened its first hotel in India (in Jaipur last month).
Meanwhile, new convention centres in Delhi, Mumbai, and Jaipur are expected to attract more business travellers. As the industry crosses the 200,000 branded-room milestone, revenues and valuations are likely to climb, setting the stage for strong long-term growth.
“The domestic travel market has stabilized and international travellers—while not fully back yet to pre-covid numbers—should also grow from here on. The industry is expected to see hockey-stick growth in the next four-five years,” said Keswani.
Way behind IHCL
Markets consultant Prashant Biyani, vice president of institutional equity research at Elara Capital, said that while ITC Hotels and Indian Hotels (IHCL) share some similarities, with both owning marquee luxury properties, IHCL’s presence is well diversified.
IHCL has ambitious expansion plans and is on track to double its portfolio in the next five years through both managed and owned hotels, whereas ITC Hotels’ growth is largely from management contracts.
“Fundamentally, the two companies differ in portfolio size and brand positioning. ITC, like IHCL, has a strong presence in the luxury segment, but only in major cities. Yet, each player will have to carve out its own niche in the market,” Biyani said.
In the listed space, it should take a few quarters for ITC Hotels to stabilize.
—Prashant Biyani
He noted that IHCL’s strength lies in its diversified portfolio across various categories, whereas ITC’s luxury portfolio remains its strength. At present, ITC’s relatively new brands, Mementos and Storii, launched two-three years ago, have yet to establish a significant footprint. While both companies will see incremental growth from rising room rates and occupancies, ITC’s earnings from management fees remain relatively small at present.
“In the listed space, it should take a few quarters for ITC Hotels to stabilize,” Biyani added.
EIH, Oberoi’s owner, currently owns and manages about 30 hotels in India. Its owned assets rival pretty much every big-city asset in the ITC portfolio. Those assets are in equally prime locations, and command a similar or higher room rate.
In the short term, the robust performance of ITC’s legacy hotels across India should stand the company well. However, the lack of a pipeline of owned hotels or an international presence is a concern. The outlook for its managed portfolio will also worry investors.
With the industry poised for strong expansion, ITC Hotels has made its move. The coming years will reveal whether it was the right one.
