Leela Palaces' ₹5,000 crore IPO: 5 key things you need to know

If approved, this could be the country's largest IPO in the hospitality sector.

The company's proposed IPO is a combination of a fresh issue of equity shares worth ₹3,000 crore and an offer for sale (OFS) of stocks valued ₹2,000 crore by promoter Project Ballet Bangalore Holdings (DIFC), according to the draft red herring prospectus (DRHP).

Schloss Bangalore, which is backed by Brookfield Asset Management, said proceeds of the fresh issue will be used for loans availed by the company and its subsidiaries and for general corporate purposes.

Schloss Bangalore, known for its luxurious hotels and resorts under "The Leela" brand, had a portfolio of 3,382 keys across 12 operational hotels.

As of May 31, 2024, its portfolio includes The Leela Palaces, The Leela Hotels, and The Leela Resorts, located across 10 destinations in the country.

Hospitality Industry Outlook

According to a report by ICRA, sustenance of domestic leisure travel, demand from meetings, incentives, conferences, and exhibitions (MICE), including weddings, and business travel (despite a temporary lull during the election period) are likely to drive demand in FY2025. 

Spiritual tourism and Tier II cities are expected to contribute meaningfully in FY2025. Sustenance of a large part of the cost-rationalisation measures undertaken during the COVID period, along with operating leverage benefits, has resulted in sharp expansion in margins compared to pre-COVID levels.

ICRA’s sample comprising 12 large hotel companies is expected to report strong operating margins of 31-33% for FY2024 and FY2025, as against 33% for FY2023 and 20-22% pre-COVID.

"India’s attractiveness as a global travel destination has been further enhanced by its geopolitical stability, world-class infrastructure, and commitment to hosting international events. Therefore, these factors contribute to the growth of the tourism industry and, as a result, keep the hospitality industry firm," the report says.

The average revenue per user (ARPU) in the hospitality industry, as depicted from 2017 to projected figures in 2028, shows a consistent upwards trajectory. Starting at US$ 163.6 in 2017, ARPU remained stable over the next few years, before experiencing incremental growth.

The year 2023 witnessed a notable increase to US$ 166.5, followed by further anticipated growth in the forecast years. By 2028, ARPU is expected to reach US$ 174.1, indicating a steady rise in revenue generation per user over the span of a decade.

The IPO, as per reports, is being managed by a consortium of 11 merchant bankers -- 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.