IPO Size: Rs. 3,500 cr

• Fresh Issue of Rs. 2,500 cr, to repay Rs. 2,300 cr of Rs. 3,900 cr gross debt and become net debt free
• Offer for Sale (OFS) of Rs. 1,000 cr by the promoter Brookfield (100% holding to shrink to 76%)

Price band: Rs.413-435 per share

M cap: Rs. 14,527 cr, implying 24% dilution

• Only 10% retail, as company reported loss for FY23 and FY24

IPO Date: Mon 26^th May to Wed 28^th May 2025, Listing Mon 2^nd Jun 2025

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

‘The Leela’ Hotel Owner and Operator

Schloss Bengalore operates 3,553 keys across 13 hotels in India, of which, 1,224 are at 5 owned properties. By number, owned properties account for 34% but contribute ~88% to Rs. 600 cr operating profit (EBITDA excluding other income), highlighting huge concentration risk for the business. Managed and franchised hotel keys, 66% in number, were added in the past 5 years, post takeover from erstwhile founders, and account for barely 12% of operating profit.

20% Inventory Addition in 3 years  

Company has a pipeline of 678 keys (475 owned, 203 managed) across 7 properties, implying 20% inventory growth, till 2028. Rs. 1,132 cr capex will be funded through a mix of internal accruals and fresh debt over the next 3 years. Company’s key addition plan is not as aggressive as some of the peers, like Indian Hotels having 19,500 keys in pipeline on a base of 26,500 keys, which mutes its long-term growth outlook.

Operating Parameters

Average room rent (ARR) across 5 owned properties is at Rs. 22,545, but at a company level, ARR stood at Rs. 16,409 in FY25. Occupancy level of 65% is on the lower side (78% occupancy for Taj-operator Indian Hotels, 73% for Marriott-branded Chalet), which has improved only marginally, from 61% in FY23 to 63% in FY24, despite industry boom and demand exceeding supply in luxury hospitality segment.

As a result, Schloss’ Revenue per available room (RevPAR) of Rs. 10,696 for FY25 is lower than luxury peers like Indian Hotels (Rs. 13,450) and Ventive (Rs. 13,300) and can said to be at some premium to business hotels like Chalet (Rs. 8,800).

Debt Repayment to boost FY26 Bottomline

On FY25 revenue of Rs. 1,301 cr, operating profit stood at Rs. 594 cr, translating into 46% margin. Adjusting for management fees from managed portfolio, which is not part of revenue, effective margin is at ~40%.

FY25 profit after tax stood at just Rs. 48 cr, which is essentially the Rs. 106 cr other income (representing treasury income and government grant) flowing through to the bottomline. Post repayment of debt from IPO proceeds, finance cost will reduce from Rs. 450 cr to nearly Rs. 150 cr, strengthening bottomline by nearly Rs. 300 cr. However, hotel business is not valued on PE, rather on EV/EBITDA and EV per key.

Pricing: Unattractive on both counts

Enterprise Value (EV) of Rs. 14,750 cr leads to an EV per key of Rs. 4.1 cr, higher than Indian Hotels’ Rs. 4.0 cr, despite 50% keys being under flagship Taj brand and higher occupancy. As against this, Leela has 66% keys under management with a pipeline of new hotels also lower, indicating slower growth in the future.

On an estimated 10% growth in FY26E operating profit, EV/EBITDA multiple of 20x is also seen unattractive for RevPAR of Rs. 10,700 cr being a premium to business hotel category (not luxury) and 40% effective operating margin in line with industry. Peer Ventive is trading at a FY26E EV/EBITDA multiple of 17x, despite 24% higher RevPAR of Rs. 13,292 RevPAR and comparable margin. Thus, pricing is not attractive on both asset and earnings basis.