Turning Luxury Experiences into Earnings
Key Points
Leela is structurally advantaged as luxury travel shifts toward ‘experiential luxury’ given its marquee city palaces and experience-led leisure assets commanding 30–40% ARR/RevPAR premium; it is capturing a higher wallet share from F&B, banquets, and wellness segments. Considering these, we expect Leela to deliver like-to-like ARR/RevPAR CAGR of 9%/11% over FY25–FY28E, which would aid overall growth and profitability.
As Leela has reduced gross debt from Rs39bn in FY25 to ~Rs15bn by H1FY26, we expect net debt/EBITDA to improve from 6x to <2x by FY26E, strengthening balance sheet support for its ‘scarcity-led luxury’ expansion. The pipeline targets destination-defining assets by FY28E where premium demand is outpacing quality supply, thus supporting faster ramp-ups and sustained pricing power across marquee wallet-share markets (Udaipur-weddings/MICE), iconic high-ADR destinations (Agra, Ayodhya), supply-constrained leisure (Ranthambore/Bandhavgarh), and Srinagar (J&K tourism revival). We expect Leela to deliver a strong growth runway with owned keys rising to 1,567 by FY28E (ex-Srinagar JV) and managed keys reaching 2,214 by FY27E (ex-Palm Jumeirah), thereby supporting FY25–FY28E RevPAR/ARR CAGR of ~11%/~10% and revenue/EBITDA CAGR of 16%/18%, as the mix upgrades and F&B/banquet monetization adds to the operating leverage. We initiate coverage on Leela with a BUY rating and a target price of Rs529, implying 26% upside, based on a valuation of 20x Mar-28E EV/EBITDA, broadly in line with EIH at 19x, reflecting Leela’s faster EBITDA CAGR of 18% versus 12% for EIH over FY25–FY28E, with ROCE expected to improve to early double digits by FY28E..However, we recognize that Leela’s ROCE is lower than peers, which could act as a constraint on multiple re-rating if ROCE expansion remains limited. We have highlighted in the outlook and valuation segments the reasons behind Leela’s low ROCE driven by pre-IPO fund infusion. In addition, while ROE is expected to dip in FY26E due to the IPO-related fundraise, we expect it to recover to a high single-digit level by FY28E as earnings come in at a faster rate by FY28E. We also like Chalet, EIH and IHCL in the sector. Experiences choose the destination - Why Leela is structurally advantaged: Indian and global travel are undergoing a paradigm shift - from ‘destinations dictating the itinerary’ to ‘experiences dictating the destination’. Luxury travelers are increasingly planning trips around experiences such as celebrations, wellness, culinary immersion, culture, and adventure, and then choosing the location accordingly. Leela is well placed for this shift: its marquee city palaces such as New Delhi, Bengaluru, Chennai, Udaipur, and Jaipur enable high-spend stays through signature dining, spa-led wellness, and destination- scale banqueting (wedding/MICE). On the leisure side, the properties are designed for purpose-led travel where the experience becomes the core attraction. This blend should deepen engagement, expand wallet share beyond rooms, and reinforce Leela’s rate dominance in the years ahead. Leela is a pure-play luxury platform with visible pricing power (core portfolio strength): Leela’s five owned marquee assets consistently command a premium vs the luxury set. FY25 owned portfolio delivered 1.4x ARR and 1.4x RevPAR vs luxury-segment average, while the managed portfolio also outperformed at 1.3x ARR/1.2x RevPAR vs micro-market peers.
