Schloss Bangalore IPO: Should you subscribe to The Leela Hotels issue?

The Leela Hotels IPO, Schloss Bangalore IPO: As the hospitality landscape in India continues to evolve, Schloss Bangalore Ltd which is the esteemed operator behind the iconic The Leela Palace & Hotels brand is poised to enter the capital market with its Initial Public Offering (IPO).

The share sale window of the hospitality sector firm will open on May 26, 2025, with a price band of Rs 413 to Rs 435 per share.

With a total issue size of Rs 3,500 crore, the issue comprises a fresh issue of Rs 2,500 crore and an offer-for-sale (OFS) worth Rs 1,000 crore.The IPO is scheduled to close on May 28, 2025.

But beyond this, the question is should investors apply for this issue or not? Here is an in-depth look at the IPO details and analysts' recommendations.

Allocation structure

In terms of allocation, 75 per cent of the shares are reserved for Qualified Institutional Buyers (QIBs), 15 per cent for Non-Institutional Buyers (NIBs), and the remaining 10 per cent for retail category.

Overview of the Leela Hotels

Schloss Bangalore operates 13 luxury hotels across India, with a portfolio of 3,553 keys under The Leela Palaces, Hotels & Resorts brand.

The company adopts an asset-light model, with only 5 owned and managed properties, 7 under management contracts and 1 under a franchise model.

As of December 2024, the company has a presence in all 7 business markets and 3 of the 5 leisure markets in the nation. The company accounts for nearly 18 per cent of the luxury hotel keys in these markets.

Should you subscribe to the IPO?

Analysts at Bajaj Broking have said that the IPO is more of a "turnaround and brand-led growth story" than a value-driven bet. The premium valuation already prices in future optimism.

“Investors should be cautious, recognising that this IPO is largely a bet on a turnaround and brand-led growth story, rather than a value play based on existing fundamentals,” the brokerage said.

Despite this, Bajaj Broking suggests subscribing with a long-term view.

According to Bajaj Broking, the company has a negative EPS (Rs –0.12) and a negative net asset value (Rs –160.57) that make valuation metrics like P/E and RoNW inapplicable or misleading.

"This places it at a significant valuation premium to listed peers like Indian Hotels and EIH, both of which are consistently profitable," according to Bajaj Broking analysts.

Analysts at Anand Rathi have recommended subscribing to the IPO with a long-term perspective, citing the company’s brand positioning and operational strategy.

“Schloss Bangalore has a leading luxury hospitality brand with rich heritage and global appeal, supported by marquee-owned hotels in high-entry-barrier markets," Anand Rathi's analysts said.

"The company’s comprehensive luxury ecosystem results in diversified revenue streams, and it has a track record of driving operational efficiency through an active asset management approach," according to them.

Anand Rathi believes the IPO is fairly priced given the company’s long-term growth potential and market leadership in the luxury hospitality segment.

SBI Securities is positive on the IPO without rating

While SBI Securities has not provided an explicit recommendation, it offers a largely positive outlook on Schloss Bangalore’s fundamentals and prospects.

“At the upper price band, the company is valued at an FY25 EV/EBITDA multiple of 26.3x, based on post-issue capital," according to SBI Securities

"Schloss’s presence in the luxury hospitality space positions it well for above-average sector growth in the coming years...IPO proceeds will be used to repay debt, reducing the debt-to-equity ratio from 1.1x and improving overall profitability.

"While valuation is moderately high, the note highlights improving financial performance, sector tailwinds, and deleveraging plans as key positives," SBI Securities' analysts said. 

What are risk factors if you invest in?

Many analysts also highlighted several risk factors related to the Leela Hotel:

• The company has pledged certain assets as collateral. Failure to meet debt obligations could lead to seizure or forced sale of these assets.
• Any delays in renovating or refurbishing existing owned hotels may hurt operations and guest experience
• Delays or issues in the completion of new properties could lead to lost revenue opportunities
• The business heavily depends on the premium image of “The Leela”. Any deterioration in brand reputation could affect revenues and future partnerships

Upcoming projects

Schloss Bangalore is expanding its portfolio with several under-development luxury properties across the country. Here are details of these expansion plans of The Leela Hotels & Palace:

Anchor investors

Prior to its IPO opening, the company has raised Rs 1,575 crore from anchor investors.

The anchor portion received interest from a range of domestic institutional investors such as HDFC Mutual Fund, ICICI Prudential Mutual Fund, Nippon India Mutual Fund, Mirae Asset Mutual Fund, Invesco Mutual Fund, and Aditya Birla Sun Life Insurance. While global investors also showed thier interest, including sovereign funds and foreign portfolio investors (FPIs) like Think Invest, Fidelity, Norges Bank, Whiteoak, Lunate, UC Regents, TT International, and Ward Ferry.

Other details of the IPO

BRLMs: JM Financial, BofA Securities, Morgan Stanley, JP Morgan, Kotak Mahindra Capital, Axis Capital, Citi, IIFL Capital, ICICI Securities, Motilal Oswal, and SBI Capital Markets

The minimum bid lot is set at 34 shares. The registrar for the IPO is KFin Technologies Ltd.