This is the hotel playbook's most important distinction, and it trips up more investors than any other in the sector. The same brand can be attached to two completely different business models:
- Owned / leased (asset-heavy). The company owns the building, or leases it long-term. It captures the entire RevPAR and all the upside when the cycle is hot. It also bears the entire capital intensity, and a luxury hotel can cost ₹2 to 4 crore per room to build. And it carries the entire cyclical downside. So this business is capital-heavy and cyclical, and its ROIC is cyclical too. On average it's modestly above the cost of capital, and in bad years it falls below. Value it like any capital-heavy cyclical asset: EV/EBITDA on normalised (mid-cycle) earnings, ROCE, net debt/EBITDA.
- Managed / franchised (asset-light, fee income). The company owns no building. It puts its brand and management on someone else's hotel and collects a fee. That's typically a base fee, a % of the hotel's revenue (~2 to 4%), plus an incentive fee, a % of the hotel's gross operating profit. This business needs almost no capital, so its ROIC is enormous, often 30 to 50%+. Its cash flow is annuity-like and far less cyclical than owning. Fees do fall in a downturn, but the company isn't carrying the building's fixed costs or debt. And it scales by signing management contracts instead of pouring concrete. Value it like a capital-light compounder: P/E, or EV/EBITDA on the fee stream, at a premium multiple, with net unit / room-pipeline growth as the key growth driver.
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Which hotel companies use each model?
Two real companies show the contrast. (Illustrative, modelled on ~FY24 scale. Pull the filings.) Indian Hotels Company (IHCL), the Taj group, was historically asset-heavy. It owned trophy palaces like the Taj Mahal Palace and Rambagh. Their land and brand are irreplaceable, but their capital intensity dragged group ROCE and their earnings whipped about with the Indian travel cycle. IHCL's multi-year strategy, branded in the style of "Ahvaan 2025 / Accelerate 2030", has been to pivot asset-light. It's growing management contracts and fee income, along with the Ginger lean-luxe and amã homestay brands. The aim is for a rising share of profit to come from managing instead of owning, which de-risks the cycle and lifts ROCE.
Marriott International is the pure asset-light model taken to its limit. It owns almost none of its ~9,000 hotels, and virtually all of them are managed or franchised. That makes Marriott essentially a brand-and-loyalty fee engine with sky-high ROIC. It grows by adding rooms to its system and returns cash by buying back stock. The market pays Marriott a much higher multiple than a comparable owned-hotel operator, and it's right to. The fee stream is asset-light, recurring, and structurally less cyclical.
How do you value a hotel company that does both?
When a company is mixed, like IHCL, value it sum-of-the-parts. Put owned EBITDA on a cyclical EV/EBITDA and fee EBITDA on a compounder's multiple. Blend them into one number and you'll misvalue both halves.