Schloss Bangalore Limited (Subscribe)

Highlights

Schloss Banglore Limited (Leela Hotels) incorporated in 2019, own, operate, manage and develop luxury hotels and resorts under The Leela brand. The Leela brand was ranked as 1^st among the world’s best hospitality brands in 2020 and 2021, and among the world’s top 3 hospitality brands in 2023 and 2024.

The company is one of the largest luxury hospitality companies by number of keys in India with 3553 keys across 13 operational hotels. Their goal is to offer guests luxury experiences with premier accommodation, exclusivity and personalized service, inspired by the ethos of Indian hospitality. They aim to maintain their position as a world-class luxury hospitality brand.

Leela’s Portfolio includes The Leela Palaces, The Leela Hotels and The Leela Resorts. They undertake their business primarily through (i) direct ownership of hotels and (ii) hotel management agreements with third-party hotel owners. Their Portfolio includes 5 owned hotels (Owned Portfolio), 7 hotels that are managed by them pursuant to hotel management agreements (Managed Portfolio) and one hotel which is owned and operated by a third-party owner under a franchise arrangement with Leela.

They have a strategic footprint across 10 key Indian business and leisure destinations, covering 80 pct of international air traffic and 59 pct of domestic air traffic in India. Their portfolio is present in all 7 top business markets and three of the top five leisure markets of India and they account for nearly 18 pct of the total existing luxury keys across these markets that they are present.

Out of the total proceeds of Rs. 35,500 mn, Rs. 23,000 mn would utilise for repayment of certain borrowing availed by the company and subsidiaries which comprises of 58.84 pct of Leela’s total borrowings as of FY25. ~Rs. 2,000 mn would utilise for general corporate purpose and Rs. 10,000 mn would go towards existing selling shareholders of the company.

Key Highlights

• The Indian hospitality sector is expected to deliver strong growth in the coming years as India’s GDP is projected to nearly double from USD 3.6 trillion in 2023 to USD 6.8 trillion in 2030 and the demand for luxury rooms is estimated to grow at a CAGR of 10.6 pct over FY24 to FY28.
• Apart from 3553 keys, the company plans to expand their portfolio with seven new hotels, aggregating approximately 678 keys or 19.08 pct of existing keys through 2028 that will be either developed, owned or managed by them. These are currently in various stages of acquisition and development. Going forward, they intend to continue to strategically undertake future expansion across the luxury hospitality sector within India and internationally.
• They currently manage a residential club in one of Mumbai’s luxury residential buildings and are looking to further expand this business. They are also looking to expand into. The Leela-branded residential offerings for sale adjacent to The Leela branded hotels that they will develop in the future. Further, they aim to launch exclusive members only clubs across select hotels in owned Portfolio, further diversifying hospitality offerings.
• The company believes they are well-positioned to capitalize on the expected increase in travel demand in the near future, and thus they are focused on increasing their room rates while maintaining and improving average occupancy.
• Leela Hotel’s key growth strategies include (i) Improve same-store growth and profit margins through proactive asset management (ii) Expansion of portfolio through acquisitions and developments, including through identified assets (iii) Expand footprint through new hotel management agreements (iv) Maintain a sustainable capital structure while pursuing organic and inorganic growth opportunities with prudent capital allocation and (iv) Expand the reach of The Leela brand.
• To further accelerate growth the company has entered into a right of first offer agreement with an affiliate of Brookfield (BSREP III India Ballet Holdings (DIFC) Ltd) a promoter of the company’s Promoter, granting Schloss Bangalore the right of first offer to acquire hospitality assets from them, before such offer is made to third parties.
• The company’s sales have grown by 22.97 pct CAGR over FY23-25 where EBITDA grown 28.57 pct over same period. In FY25 the company reported sales of Rs. 13,006 mn, rose 11.02 pct YoY. EBITDA grew 16.69 pct YoY while margins expanded 261 bps to 53.84 pct. The company reported a profit of Rs. 477 mn in FY25 against loss of Rs. 21 mn in FY24.

Key Risk

• The company is, and will continue to be, a foreign-owned and controlled company under Indian law and will be subject to certain restrictions under law in its capacity as a foreign-owned and controlled company.
• Their business is subject to seasonal and cyclical variations that could result in fluctuations in their financials.

Financial Performance

Peer Comparison based on FY24 Financials

Valuation

Schloss Bangalore Limited (Leela Hotel) aim to maintain their position as a world-class luxury hospitality brand with strategic footprint across 10 key Indian business and leisure destinations, covering 80 pct of international air traffic and 59 pct of domestic air traffic in India in the FY25. At the upper end of the price band of Rs. 435 the issue is priced at an EV/EBITDA of ~26.24x of its FY25 earnings. The issue looks fully priced. Only long term investors can subscribe this issue.

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