Why Stocks Like ITC Hotels Are in Focus?

India's hotel industry is experiencing a significant uplift. The thriving Indian economy means people have more disposable income, leading to increased domestic travel. Global tourism is also making a strong comeback, further boosting the hospitality sector. These factors have directly translated into higher bookings and increased earnings for hotel chains across the country. 

Spotlight on ITC Hotels: A New Player's Valuation Puzzle 

ITC Hotels, a recent spin-off from diversified ITC Ltd, has seen its stock price jump by an impressive 30% since February 2025. This rapid rise brings up a crucial question for investors: does ITC Hotels still offer a good balance of risk and reward? 

Valuing a newly listed company like ITC Hotels is tricky because it lacks a long financial track record. The traditional method of using the Price-to-Earnings (PE) ratio is often unreliable for hotel stocks. Hotel profits can fluctuate wildly due to various factors like pandemics, economic slowdowns, or even local events, making PE ratios an unstable indicator of true earning potential.  

Why Book Value is Key for Hotel Stocks  

Instead, a more effective way to value hotel properties is by looking at their asset worth, specifically the Price-to-Book (PB) ratio. Unlike cars that lose value over time, well-maintained hotel properties often gain value. A hotel bought for ₹15 crores could be worth ₹50 crores after ten years, driven by factors like location, brand reputation, and consistent income. 

Interestingly, accounting practices often show depreciation even when the market value of a hotel property is increasing. This is why high-quality hotel stocks frequently trade at prices far above their book value. Investors understand that the book value doesn't reflect the true market worth of these assets. Brand recognition and customer loyalty further contribute to their elevated market value. 

Historically, the PB ratio for hotel stocks can range from double their book value during tough times (like the COVID-19 pandemic, when Indian Hotels' PB dropped to 2x) to as much as ten times during favorable periods. 

Comparing ITC Hotel to Its Peers 

To assess ITC Hotels, we can look at its closest competitors: 

• Indian Hotels Company Ltd (IHCL): Owner of the Taj Hotels brand, IHCL has a long financial history and an average PB multiple of 5.6 times over the past decade. Currently, its PB ratio is much higher at 10 times, well above its long-term average. 

• EIH (East India Hotels): Operating the Oberoi and Trident brands, EIH is a smaller, more luxury-focused chain. Its average PB ratio over the last decade has been three times. 

Given that ITC Hotels is the second-largest chain after Indian Hotels and has a broader offering than EIH, its valuation should ideally fall somewhere between the two. Taking the average of their long-term PB multiples (3 for EIH and 5.6 for Indian Hotels) gives us a mid-point PB of 4.5. 

Multiplying this 4.5 PB multiple by ITC Hotels' current book value suggests a share price of approximately ₹225. With ITC Hotels currently trading around ₹220, it appears to be at a slight discount for investors who believe its valuation should align with the average of its peers. 

Read more: ITC Hotels Q4 FY25 Earnings Results Out: Check Key Announcements Here! 

Conclusion 

While some might argue for a higher PB ratio for ITC Hotels due to anticipated future growth, a conservative investment approach often advises valuing a business closer to its historical average multiple. This breakdown aims to provide a clearer picture for investors considering ITC Hotels, encouraging an informed decision based on a comprehensive understanding of its valuation against industry benchmarks. 
 
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.