ITC Hotels Soars 30% From Its Low: Is It Still a Hidden Gem?

ITC Hotels, the luxury hospitality arm of ITC Limited, has captured investors’ attention recently, soaring over 30% from its recent lows. This sharp recovery comes amid a broader revival in the hospitality sector and optimistic outlooks on domestic and international travel. But the critical question for investors now is whether ITC Hotels remains a hidden gem with long-term growth potential or if it has already priced in its upside.

Market Context: Hospitality Sector on a Recovery Path

The Indian hospitality sector has experienced a strong rebound after two years of pandemic-induced disruptions. With domestic travel surging due to pent-up demand and international borders reopening, hotel occupancies and average daily rates (ADR) have improved steadily since late 2023.

According to industry data, the luxury hotel segment — where ITC Hotels primarily operates — has seen occupancies recover to near pre-pandemic levels, driven by business travel and premium leisure demand. “The hospitality industry is on a clear recovery path, aided by rising disposable incomes and changing consumer preferences,” said Ramesh Iyer, senior analyst at Kotak Institutional Equities.

This sector recovery has fueled renewed investor interest in hospitality stocks, which were among the most battered in 2020-21.

ITC Hotels’ Recent Performance: What Sparked the Rally?

ITC Hotels stock price rallied sharply, gaining more than 30% from its recent low of ₹240 per share to touch around ₹315 in just a few weeks. Several factors contributed to this surge:

• Improved Earnings Outlook: The latest quarterly earnings showed a marked improvement in revenue and profitability for ITC Hotels, driven by higher room rates and increased occupancy.

• Strategic Expansion: ITC Hotels has announced plans to add 20-25 new properties over the next two years, focusing on luxury and premium segments in key metro cities and tourist destinations.

• Brand Revamp and Digital Push: The company’s efforts to enhance its digital booking platforms and loyalty programs have improved customer retention and boosted direct bookings, reducing commission costs.

• Strong Parentage and Cash Flow: Backed by ITC Limited’s robust balance sheet, ITC Hotels enjoys financial flexibility that many standalone hotel chains lack.

“ITC Hotels has leveraged its brand strength and operational efficiencies well to capitalize on the reopening trend. The recent rally partly reflects these structural positives coming into play,” said Priya Desai, hospitality sector specialist at Motilal Oswal Financial Services.

Analyst Perspectives: Is the Upside Over or Just Beginning?

Despite the impressive rally, analysts are divided on whether ITC Hotels still offers value or if investors should book profits.

Bullish Viewpoint:
Analysts bullish on ITC Hotels argue that the company is well-positioned to ride the secular growth in India’s luxury hospitality market. The management’s aggressive expansion plans and ongoing operational improvements provide a strong earnings growth runway. They also highlight the company’s focus on sustainability initiatives, which is becoming an important differentiator.

“Given the early stages of India’s luxury travel recovery and ITC Hotels’ competitive positioning, we believe there is significant upside potential beyond current valuations. The stock remains undervalued relative to its peers,” noted Sandeep Kumar, senior analyst at HDFC Securities, who maintains a ‘Buy’ rating.

Cautious Viewpoint:
On the flip side, some analysts caution that a lot of positive news is already priced in. The recent surge may lead to short-term volatility as the market awaits further proof of sustained margin improvement and steady cash flows.

“While ITC Hotels has performed well, investors should watch for risks like rising input costs, labor shortages, and competition from new hotel entrants and Airbnb alternatives. The valuation is no longer a deep value play,” argued Meera Shah, equity strategist at ICICI Direct, recommending a ‘Hold’ stance.

Investor Outlook: Should You Buy, Hold, or Sell?

For long-term investors, ITC Hotels presents a mixed picture:

• Growth Potential: The company’s footprint in the luxury hotel market and strong parent backing provide a sturdy foundation for long-term growth as travel normalizes.

• Valuation Considerations: After a 30% jump, valuation multiples have expanded significantly. Investors need to assess if future earnings growth justifies current price levels.

• Risk Factors: Challenges such as inflationary pressures, regulatory changes, and geopolitical uncertainties impacting global travel may influence near-term performance.

A prudent approach would be to monitor the upcoming quarterly results and management commentary closely. Diversifying exposure across other hospitality players and tourism-linked sectors could also help manage sector-specific risks.

ITC Hotels’ sharp rebound from lows has rekindled investor interest in this marquee hospitality brand. With the Indian travel industry on a sustained recovery, the company’s strong brand equity, strategic growth plans, and improving operational metrics position it well for the future.

However, the recent price rally has raised valuation questions, and investors must weigh growth prospects against risks carefully. While ITC Hotels may no longer be a deep hidden gem, it remains an attractive investment for those with a medium to long-term horizon and an appetite for sector volatility.