In a major development for India’s hospitality sector, Schloss Bangalore Ltd, the operator of Leela Palaces, Hotels & Resorts, has filed preliminary papers with the Securities and Exchange Board of India (SEBI) to raise Rs 5,000 crore through an initial public offering (IPO). The announcement, made on Sunday, highlights what could become the largest IPO in the hospitality sector in India to date.
This IPO is expected to significantly boost the company’s expansion plans, positioning it to tap into the growing demand for luxury hotels in India, driven by both domestic and international tourism.
Breakdown of Schloss Bangalore’s Rs 5,000 Crore IPO
The Schloss Bangalore IPO will consist of a combination of a fresh issue of equity shares worth Rs 3,000 crore and an offer for sale (OFS) by Project Ballet Bangalore Holdings (DIFC) Pvt Ltd, which will sell shares valued at Rs 2,000 crore. This dual approach allows the company to raise fresh capital while also enabling its promoters to partially divest their holdings.
The draft red herring prospectus (DRHP) filed with SEBI outlines the use of proceeds from the fresh issue. The funds will primarily be used to repay outstanding loans taken by the company and its subsidiaries, as well as for general corporate purposes.
As of March 2024, the company had total borrowings of Rs 4,052.50 crore, a substantial figure that the IPO proceeds are expected to help reduce, improving the company’s financial standing.
Pre-IPO Placement Round Could Raise Rs 600 Crore
In addition to the public offering, Schloss Bangalore may consider raising Rs 600 crore through a pre-IPO placement round. If this is successfully executed, the size of the fresh issue in the IPO will be proportionally reduced, ensuring the company can maintain flexibility in its capital-raising strategy.
Schloss Bangalore’s Portfolio: A Luxury Hotel Leader
Schloss Bangalore is renowned for operating some of India’s most prestigious and luxurious properties under the Leela brand. The company boasts an impressive portfolio of 3,382 keys across 12 operational hotels, positioning it as a key player in the luxury hospitality market.
As of May 31, 2024, Schloss Bangalore’s portfolio includes properties under The Leela Palaces, The Leela Hotels, and The Leela Resorts, spread across 10 destinations in India. These properties are known for their iconic architecture, world-class amenities, and superior service, attracting affluent clientele from both domestic and international markets.
Strong Financial Performance
Schloss Bangalore has shown remarkable financial growth over the past two years. The company’s earnings before interest, taxes, depreciation, and amortization (EBITDA) surged from Rs 87.72 crore in FY22 to an impressive Rs 600.03 crore in FY24. This significant increase in operating profit underscores the company’s ability to capitalize on the growing demand for luxury hospitality in India.
The company’s consistent performance and strong brand reputation have made it a sought-after player in the hospitality sector, and its IPO is expected to generate considerable interest among institutional and retail investors alike.
India’s Hospitality Sector: Positioned for Growth
Schloss Bangalore’s IPO comes at an opportune time, as India’s hospitality sector is experiencing rapid growth. According to a report by HVS, India’s hospitality industry is poised for strong expansion, with the country’s gross domestic product (GDP) expected to nearly double from USD 3.6 trillion in 2023 to USD 7.1 trillion by 2030. This economic growth is expected to drive demand for luxury hotels and resorts.
The report also highlights that the luxury hotel segment makes up only 17% of India’s branded hotel market, indicating significant room for expansion. Demand for luxury rooms is expected to grow at a rate of 10.6% annually from FY24 to FY28, while supply is projected to increase by just 5.9% during the same period. This supply-demand gap is expected to benefit players like Schloss Bangalore, allowing them to charge premium rates and maintain high occupancy levels.
Tourism Growth to Fuel Demand
India’s tourism sector is another key driver of growth for the hospitality industry. Domestic tourism is projected to grow at an annual rate of 13.4%, while foreign tourist arrivals (FTAs) are expected to increase by 7.1% annually from 2024 to 2030. This steady rise in tourist numbers will likely boost the performance of luxury hotels like The Leela, which are well-positioned to cater to both business and leisure travelers.
The increase in both domestic and international tourists will create opportunities for Schloss Bangalore to expand its footprint, particularly in under-served luxury segments.
IPO Managed by Leading Merchant Bankers
The Schloss Bangalore IPO is being managed by a consortium of 11 prominent merchant bankers, ensuring that the offering reaches a wide audience of potential investors. The consortium includes JM Financial, BofA Securities India, Morgan Stanley India Company, JP Morgan India, Kotak Mahindra Capital Company, Axis Capital, Citigroup Global Markets India, IIFL Securities, ICICI Securities, Motilal Oswal Investment Advisors, and SBI Capital Markets.
This diverse group of bankers highlights the importance and scale of the IPO, with experts predicting it will attract strong interest from both institutional and retail investors.
Comparative Insight: Ventive Hospitality IPO
Interestingly, Schloss Bangalore’s IPO announcement comes just after Ventive Hospitality, a joint venture between Blackstone Group and Panchshil Realty, filed preliminary papers with SEBI to raise Rs 2,000 crore through an IPO. Ventive Hospitality focuses on luxury hospitality assets in India and the Maldives, particularly in business and leisure segments.
While both companies are targeting the luxury hotel market, Schloss Bangalore’s larger IPO size and established portfolio give it a significant edge in terms of market presence and brand recognition.
Conclusion: Schloss Bangalore’s IPO to Shape India’s Hospitality Market
The Schloss Bangalore IPO is set to be a landmark offering in India’s hospitality sector. With its strong financials, luxury brand, and a growing demand for premium accommodations, the company is well-positioned to capitalize on the expanding market. The funds raised through the IPO will enable Schloss Bangalore to reduce debt and fuel future growth, ensuring it remains a dominant player in the luxury hotel segment.
As India’s hospitality sector continues to grow, Schloss Bangalore’s IPO offers investors a unique opportunity to be part of a company that has a proven track record and ambitious plans for expansion.
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