JM Financial initiates coverage on ITC Hotels with ‘Sell’ rating, sets Rs 215 target price

Shares of ITC Hotels traded under pressure on Monday after domestic brokerage firm JM Financial initiated coverage on the stock with a ‘sell’ rating and a target price of Rs 215, flagging concerns over stretched valuations despite highlighting its strong fundamentals.’

Following the brokerage’s note, the stock slipped 1.8% to an intraday low of Rs 240.35 on the BSE.

In its coverage initiation report, JM Financial said that ITC Hotels has evolved into an industry leader with around 140 properties and 13,500 keys, enjoying a distinct positioning with nearly 60% of its inventory in the luxury segment.

The brokerage acknowledged that the company has delivered a 22% CAGR in EBITDA over FY23-25, aided by strong RevPAR growth, but cautioned that “growth remains restricted with no new asset getting commissioned till FY28E.”

JM Financial stated, “We expect it to report 11%/13% CAGR in revenue and EBITDA over FY25-28E aided by c.7% growth in ADR and ramp-up of the Sri Lanka asset.” However, it added that at current valuations of around 30x FY27 earnings, such growth is already priced in.

The brokerage also highlighted ITC Hotels’ strong portfolio of 5,500 owned keys and its shift to an ‘asset-right’ strategy, which allows expansion into tier 2 and tier 3 cities while optimising capital allocation.

The brokerage firm pointed out that ITC Hotels has a pipeline to expand its footprint to over 200 hotels and around 20,000 keys by 2030, with its fee business expected to grow at a CAGR of 16% over FY25-FY28.

On the financial front, the brokerage firm said that ITC Hotels enjoys a strong balance sheet with a net cash position of Rs 17 billion, expecting it to generate cumulative free cash flow of Rs 25 billion over FY26-28, positioning it for expansion and inorganic growth opportunities.

Despite acknowledging these strengths, the brokerage reiterated that “robust cash generation can enable it to accelerate growth by way of inorganic acquisitions, [but] we believe such an outcome is adequately priced in at current valuations.”

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