Muted debut for Leela Hotels: Shares list 6.5% lower vs IPO, close nearly flat

Luxury hospitality chain Schloss Bangalore, which operates premium hotels under ​iconic ‘The Leela’ brand, saw a muted debut on the stock markets on Monday. The much-anticipated listing disappointed investors initially, with shares opening at a discount of over 6.5% to the issue price, before recovering at closing.

On the BSE, Leela Hotels shares were listed at ₹406.5, a 7% decline from the IPO price of ₹435. On the National Stock Exchange (NSE), the stock opened even lower at ₹406, down 6.55% from the issue price. The listing also fell short of market expectations, coming in below the grey market premium (GMP) of ₹2 per share indicated earlier in the day. 

Despite the weak start, the stock showed resilience during the trading session. It recovered sharply from early losses, touching intraday highs nearly 7% above the listing price. The shares eventually closed at ₹434 on the BSE, just ₹1 below the IPO price, reflecting a drop of 0.23%. On Tuesday, the shares opened at ₹427 on the BSE.

According to the Ashika Stock Broking Ltd report, "Schloss Bangalore is focused on improving its same-store revenue growth and optimising operational efficiencies to drive profitability. It plans to enhance existing properties, launch targeted marketing initiatives, and improve cost efficiencies. The measures are expected to aid growth in RevPAR, market share, and profitability of the company’s Owned Portfolio and Managed Portfolio."

SBL plans to expand its portfolio with seven new hotels, aggregating around 678 keys by 2028. These hotels will be either developed, owned or managed by the company. It plans to expand its footprint across additional cities and tourist destinations, which include modern palace hotels in Agra (Uttar Pradesh) and Srinagar (Union Territory of Jammu and Kashmir), resorts in Ranthambore (Rajasthan) and Bandhavgarh (Madhya Pradesh) and serviced apartments in Mumbai’s (Maharashtra) international airport district. The company intends to develop existing land assets, pursue accretive asset acquisition opportunities, hotel management agreements, and pursue selective partnerships, acquisitions, and development of brands that complement its portfolio, the report says.

SBL has generated robust growth between FY23 and FY25. The revenue from operations hit a CAGR of 23% from Rs 860 crore in FY23 to Rs 1,301 crore in FY25. The company’s EBITDA margin for FY24 amounted to 46.5%, which, according to the HVS Report, was better than the EBITDA margin of its listed peers, which ranged from 32% to 45%. Its EBITDA margin for FY25 amounted to 45.7%. In addition, the Revenue Per Available Room (RevPAR) of its owned portfolio was around 2.9 times that of the overall hospitality industry in India and 1.4 times that of the luxury hospitality segment in India for FY25.

However, the success of Schloss Bangalore Ltd and its luxury ‘The Leela’ brand is heavily dependent on public recognition and reputation. A significant portion of the company’s income is derived from its five owned hotels, contributing 91-94% of total income over the past three financial years. 

The company and certain of its material subsidiaries have incurred losses in the past, with losses of Rs 2.1 crore in FY24 and Rs 61.7 crore in FY23. They may continue to face financial challenges, impacting cash flows and financial conditions despite a Rs 48 crore profit in FY25, driven by improved occupancy, higher ARR, and cost optimization efforts.