Luxury in its DNA
Schloss Bangalore Limited (Leela) owns and operates luxury hotels under the ‘The Leela’ brand, which is widely recognised for superior architecture and luxury experience – enabling the company to deliver superior ARR in the segment. The demand-supply outlook for the luxury hospitality segment in India continues to be favourable, with total demand for luxury rooms estimated to grow at a CAGR of 10.6% over FY24-FY28E against supply growth of only 5.9% over the same period. Leela has laid out an aggressive expansion plan, which will see its room inventory increase from 1,224 owned keys to 1,978 owned keys by FY30E. We expect the company to report 17%/18% CAGR in Revenue/EBITDA over FY25-28E, aided by 10% CAGR in ARR and gradual improvement in occupancy. It can generate a cumulative FCFE of ~INR 18bn during FY26E-FY30E, which enables it to comfortably fund the BKC expansion (Leela’s share – INR 20bn). We initiate coverage with a BUY rating and a target price of INR 605, valuing the company at 22x Jun’27 EBITDA (24% discount to IHCL’s target multiple).
Tailwinds in luxury segment: Rising disposable incomes, shift in consumer preference towards premium experiences, and limited inventory of luxury hotels in India have been the drivers for ADR and occupancy growth for the luxury hotel segment in India. Going forward, supply in the luxury segment is expected to remain constrained due to high barriers to entry. Total demand for luxury rooms is estimated to grow at a CAGR of 10.6% over FY24-FY28E against supply growth of only 5.9% over the same period. Riding on these tailwinds, the luxury segment’s RevPAR is expected to become ~1.5x of FY24 levels by end-FY28E.
Brand with rich heritage: Leela’s properties are widely recognised for the superior quality of architecture and has repeatedly earned top rankings among the world’s best hotels. This brand recognition, built over almost 40 years, highlights the company’s ability to deliver luxury experiences that are difficult to replicate. Leela’s RevPAR across its owned portfolio of hotels was 1.4x of the overall luxury hotel segment average in India (Source: HVS Report), reflecting the brand strength in luxury hospitality.
Strong development pipeline: Leela has laid out an aggressive expansion plan that will see its room inventory increase from 1,224 owned keys to 1,978 owned keys by FY30E. It currently has a development pipeline of 6 hotels including the recently announced mixed-use project (which includes a hotel with 250 keys) in BKC, Mumbai. It will continue to focus its expansion plans in key markets in India and internationally, where the demand-supply dynamics is favourable for luxury hotels.
Proven track record of active asset management: The management team at Leela, with strong support from Brookfield, has demonstrated its capability to enhance operational efficiency, optimise costs and strengthen brand positioning through various tactical and strategic initiatives, leading to improvement in performance of its hotels. We believe this turnaround in performance will sustain and estimate Leela’s same-store RevPAR growth at ~11% for the next 3 years.
Initiate with a BUY: We expect the company to report 17%/18% CAGR in Revenue/EBITDA over FY25-28E, aided by 10% CAGR in ARR and gradual improvement in occupancy. We forecast Leela to generate a cumulative FCFE of ~INR 18bn during FY26E-FY30E (excluding BKC capex), which will enable it to comfortably fund the BKC expansion. We initiate coverage with a BUY rating and a target price of INR 605, valuing the company at 22x Jun’27 EBITDA (24% discount to IHCL’s target multiple).
