Growth Visibility Strengthened by Dubai Entry
Leela reported an inline quarter with revenue of INR 3.1bn (+9% YoY, +13% QoQ, slightly below JMFe: INR 3.2bn) as RevPAR grew 13% YoY led by both ADR and occupancy. EBITDA at INR 1.4bn (JMFE: INR 1.4bn) grew 12% YoY as it benefited from operating leverage (margin expanded by 120bps). Leela announced its international foray with the acquisition of a luxury beachfront asset at Palm Jumeriah, Dubai in partnership with the Sponsor (Brookfield) in a 25:75 ownership structure. The asset comprises of 546 keys (including 182 residences)and is being acquired at an enterprise value of INR 43bn. Leela will invest INR 4.4bn for 25% stake which we believe is quite accretive given the potential to earn management fees from FY28E. Leela expects to re-coup its investment in three years through the sale of branded residences. Our assessment suggests that the acquisition could lead to c.6% value accretion to the current mcap without factoring in the benefit of additional fee income. Leela is also working towards obtaining regulatory approvals to demerge the office business from the existing BKC entity, such that it will only own a 50% stake in the hotel business. Overall, the company has a strong development pipeline of 1,500+ keys which provides strong growth visibility till 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. Maintain BUY rating with a target price of INR 605, valuing the company at 22x Jun’27 EBITDA.
In-line performance: Leela reported revenue of INR 3.1bn (+9% YoY, +13% QoQ) aided by 7% YoY growth in ADR to INR 19,290 and 410 bps increase in occupancy (led by the Jaipur asset). EBITDA came in at INR 1.4bn (+12% YoY, +36% QoQ) as margin expanded by 120 bps due to operating leverage. Room revenues for the quarter increased 13% YoY to INR 1.5bn while F&B revenue growth was lower at 6% YoY. In 1HFY26, revenue and EBITDA was up by 12%/22% YoY to INR 5.9bn and INR 2.4bn respectively.
Strategic expansion into Dubai: Leela has received its Board approval to acquire the luxury beachfront asset at Palm Jumeriah, Dubai in partnership with the Sponsor in a 25:75 ownership structure. The asset comprises of 546 keys including 361 hotel keys, 182 branded residences and 3 villas and the transaction is priced at INR 43bn ($503mn or $920k/key). Leela will invest INR4.4bn (in addition to renovation capex) for 25% equity stake and will also earn HMA fees to the extent of INR 0.5-0.6bn annually from FY28E, post the re-branding of asset. Management indicated that the residences will be monetized with net proceeds shared between partners. This should allow Leela to re-coup its initial investment within three years while retaining the 25% stake, making the transaction highly accretive.
Update on the BKC project: Leela is also working towards obtaining regulatory approvals to demerge the office business from the existing BKC entity, such that it will only own a 50% stake in the hotel business and the balance share in hotel along with full ownership in the 0.7msf office asset will be held by the Sponsor. The estimated capex including land acquisition for Leela’s stake stands at ~INR 8bn and company expects to generate INR 1.3bn steady state EBITDA on its investment, implying a 16% yield on cost.
Maintain BUY with a TP of INR 605: Despite high base, management remains confident of achieving double digit growth in rates in 2HFY26, which should drive the targeted high-teens growth in EBITDA. Over the medium term too, the strong development pipeline provides considerable visibility till FY30E. We expect the company to report 17%/18% CAGR in Revenue/EBITDA over FY25-28E and maintain BUY with a TP of INR 605.
