The stock faced turbulence because of several factors, including selling pressure from existing shareholders who received shares through the demerger, which initially lead to an oversupply in the market.
Additionally, a valuation correction post-listing adjusted the stock price from speculative pre-discovery levels to more realistic ones that matched market expectations. Broader industry challenges such as rising operational costs and competition from established hospitality giants also caused investors to be cautious.
Unlocking value
The demerger of ITC Hotels was a significant move by ITC Ltd to unlock value for its shareholders. Under the arrangement, for every 10 shares held in ITC, investors received one share of ITC Hotels. ITC Ltd retained a 40% stake in the newly listed entity, while the remaining 60% was distributed among shareholders.
According to ITC’s exchange filing, the total acquisition cost was split, with ITC shares retaining 86.49% of their pre-demerger value and ITC Hotels accounting for 13.51%. This means a shareholder with 1,000 ITC shares at ₹400 per share (worth ₹4,00,000) will now have ₹3,45,960 allocated to ITC Ltd shares and ₹54,040 to ITC Hotels shares.
Strong fundamentals
Despite the volatile listing, ITC Hotels boasts strong fundamentals. Analysts at B&K Securities highlight the company’s zero-debt balance sheet, ₹1,500 crore of cash reserves, and plan to increase its portfolio to more than 200 hotels and 18,000 keys in the next five years.
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Management remains confident in its growth trajectory. It has outlined an ambitious expansion strategy with a focus on being asset-light and having a strong balance sheet. The company is targeting growth through a mix of owned and managed properties, aligning with industry trends and capitalising on increasing demand in the hospitality sector.
Growth potential
Operating under six distinct brands—ITC Hotels, WelcomHeritage, Mementos, WelcomHotel, Storii, and Fortune—the company currently has 140 properties across India, Nepal and Sri Lanka.
The hotels segment contributed 4.1% to ITC Ltd’s overall revenue in FY24, and 3% of earnings before interest and tax (EBIT). Over the years, ITC Hotels has demonstrated strong growth in key performance indicators. The average room rate (ARR) surged to ₹12,000 in FY24 from ₹7,900 in FY19, a 51.9% increase, translating to compound annual growth of 8.7%.
In Q2FY25, ITC Hotels reported 12% year-on-year revenue growth, with its EBITDA margin expanding by 70 basis points due to higher revenue per available room (RevPAR), operating leverage, and strategic cost management.
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India’s hospitality industry is seeing strong demand, particularly in the premium and luxury segments, driven by rising disposable incomes and an increase in domestic and international travel. According to market analytics firm Mordor Intelligence, India’s luxury hotel sector is projected to be worth $4.83 billion by 2030, up from $2.99 billion in 2025.
In addition to its domestic operations, ITC Hotels is actively exploring expansion opportunities in international markets. Industry experts suggest that partnerships with global hotel chains and luxury travel agencies could help it strengthen its brand presence beyond South Asia. With tourism numbers on the rise, especially in key markets such as the Middle East and Southeast Asia, ITC Hotels may find itself well-positioned to tap into new revenue streams in the coming years.
Analyst sentiment
Ahead of ITC Hotels’ listing, analysts had varied expectations regarding its valuation and future performance. Analysts at ICICI Direct projected the company would benefit from favourable demand-supply dynamics in the hospitality sector, setting a target price of ₹195 a share, with an anticipated upside from the expected listing range of ₹150-170.
Nomura had estimated a price range of ₹200-300 a share, factoring in broader industry trends and valuation metrics, though market sentiment at listing ultimately influenced the stock’s debut price. SBI Securities had a more conservative projection, estimating a range of ₹113-170 a share. Nuvama anticipated a post-demerger market capitalisation of ₹42,000 crore, implying a likely share price of ₹200 after accounting for the holding company discount.
Prashanth Tapse from Mehta Equities said long-term investors consider ITC Hotels an attractive opportunity, adding, “The valuations I am talking about, (20-22 EV/EBITDA), are very conservative. Many hotel stocks today are trading around 30 EV/EBITDA, so if we consider the higher end, the stock could be worth ₹250 to 300 post-listing. ₹300 could be a target within the next 12 months.”
Competition and risks
ITC Hotels operates in a highly competitive space dominated by Indian Hotels (Taj Group) and Oberoi Group, both of which have a strong presence in the luxury and upscale segments. The company’s ability to carve out a niche through strategic partnerships—such as its global distribution agreement with Marriott—will be crucial to differentiating itself.
The impact of economic fluctuations and inflation on consumer spending patterns in the hospitality industry is another key risk factor. Any prolonged downturn in consumer sentiment or macroeconomic uncertainties could weigh on ITC Hotels’ ability to achieve its ambitious expansion targets.
Roadmap
Looking ahead, ITC Hotels aims to expand its footprint aggressively. It plans to open 28 new hotels in the next 24 months and increase its total properties to more than 200 by 2030. The company is investing ₹1,500 crore from the demerger windfall to strengthen its own space portfolio, with a focus on increasing the share of managed properties to 65% over the next five years. ITC Hotels’ strategy revolves around brand equity, digital transformation, capital productivity and talent development.
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The company has also highlighted plans for value-accretive mergers and acquisitions to drive further growth. Sanjiv Puri, Chairman of ITC Ltd, said in an interview with NDTV Profit that the hospitality industry is accelerating and they aim to be ready to invest when the right opportunity presents itself.
Conclusion
While ITC Hotels’ market debut was marred by volatility, the company remains well-positioned to capitalise on India’s rapidly growing hospitality market. With a solid balance sheet, strategic expansion plans, and a luxury-driven portfolio, it has all the ingredients for long-term success.
As India’s affluent consumer base continues to grow and tourism demand rises, the company could emerge as a formidable player in the industry, making its demerger a strategic masterstroke in unlocking shareholder value.
Suchitra Mandal is a proficient financial writer with expertise in delivering well-researched insights and detailed analyses of companies’ performance and market trends.