Schloss Bangalore Ltd, the operator of Leela Palaces Hotels & Resorts, has filed preliminary papers with SEBI to raise Rs 5,000 crore through an initial public offering (IPO), marking what could be the largest IPO in India's hospitality sector. The IPO consists of a fresh issue of Rs 3,000 crore and an offer for sale worth Rs 2,000 crore by promoter Project Ballet Bangalore Holdings. Backed by Brookfield Asset Management, the proceeds will be used primarily to reduce debt and for general corporate purposes. This strategic move comes amid strong growth in India’s hospitality sector and increasing investor interest in luxury assets.

Key Highlights of Schloss Bangalore’s IPO

Largest IPO in the Indian Hospitality Sector
Schloss Bangalore Ltd, known for its Leela brand, aims to raise Rs 5,000 crore through an IPO, making it the largest public offering in India’s hospitality sector to date. The IPO comprises a fresh issue of equity shares worth Rs 3,000 crore and an offer for sale (OFS) by promoter Project Ballet Bangalore Holdings (DIFC) Pvt Ltd valued at Rs 2,000 crore, according to the draft red herring prospectus (DRHP).

Utilization of IPO Proceeds
The company plans to utilize the proceeds from the fresh issue to repay existing loans and for general corporate purposes. As of March 2024, Schloss Bangalore had total borrowings of Rs 4,052.50 crore. This strategic allocation is expected to strengthen the company’s balance sheet and enhance financial flexibility.

Financial Performance and Strategic Growth

Significant Financial Upswing
Schloss Bangalore has demonstrated substantial financial growth, with EBITDA rising sharply from Rs 87.72 crore in FY22 to Rs 600.03 crore in FY24. This surge in profitability reflects the company’s robust operational performance and strategic positioning in the luxury hospitality market.

Expanding Portfolio of Luxury Hotels
As of May 31, 2024, Schloss Bangalore’s portfolio includes 3,382 keys across 12 operational hotels, with properties under The Leela Palaces, The Leela Hotels, and The Leela Resorts brands across 10 prime destinations in India. This extensive portfolio underscores the company’s leadership in the luxury segment, catering to both domestic and international high-end travelers.

Market Context and Growth Prospects

Thriving Indian IPO Market
The filing comes amid a booming IPO market in India, with around 60 main board companies launching initial share sales in 2024 alone. Schloss Bangalore’s IPO aligns with this trend, tapping into strong investor appetite for high-growth, luxury assets in the hospitality sector.

India’s Hospitality Sector Poised for Growth
According to HVS, India’s hospitality sector is on track for strong growth, fueled by an expected doubling of GDP to USD 7.1 trillion by 2030. The luxury hotel segment, which currently comprises only 17% of the branded hotel market, is seen as underdeveloped, with demand for luxury rooms projected to grow at 10.6% annually from FY24 to FY28, outpacing supply growth of 5.9%.

Rising Domestic and Foreign Tourism
The sector is further bolstered by a projected rise in domestic tourism and foreign tourist arrivals, with annual growth rates of 13.4% and 7.1%, respectively, from 2024 to 2030. These trends signal a strong outlook for the luxury hotel market, where Schloss Bangalore is well-positioned to capitalize on the increasing demand.

Pre-IPO Placement and Market Comparisons

Potential Pre-IPO Placement
Schloss Bangalore may consider raising Rs 600 crore through a pre-IPO placement, which would reduce the fresh issue size if executed. This move would enable the company to secure funds ahead of the public offering, optimizing its capital structure and setting the stage for a successful IPO launch.

Competition in the Hospitality IPO Space
The IPO comes on the heels of similar moves by other players in the market, including Pune-based Ventive Hospitality, a joint venture between Blackstone Group and Panchshil Realty, which recently filed to raise Rs 2,000 crore through its own IPO. Ventive Hospitality focuses on luxury assets in India and the Maldives, highlighting the growing investor interest in the high-end hospitality segment.

Managed by Leading Investment Banks

Consortium of 11 Merchant Bankers
The IPO is being managed by a consortium of top-tier investment banks, including JM Financial, BofA Securities India, Morgan Stanley India, JP Morgan India, Kotak Mahindra Capital, Axis Capital, Citigroup Global Markets India, IIFL Securities, ICICI Securities, Motilal Oswal Investment Advisors, and SBI Capital Markets. This diverse and experienced group underscores the high-profile nature of the offering and its expected appeal to institutional investors.

Positioning for Future Growth
Schloss Bangalore’s ambitious IPO marks a significant milestone in its growth trajectory, aiming to solidify its position as a leader in India’s luxury hospitality sector. With a strategic focus on debt reduction and portfolio expansion, the company is poised to capitalize on the burgeoning demand for premium hospitality services in one of the world’s fastest-growing economies.