Schloss Bangalore IPO: Luxury Hotel Chain Leela Palace Hotel Files DRHP With SEBI For Rs 5,000 Cr Issue

Schloss Bangalore, an operator of luxury hotels and resorts under the renowned Leela brand, is all set to make an entry into the Indian capital markets. The company filed its Draft Red Herring Prospectus (DRHP) with the Securities and Exchange Board of India (SEBI) on September 20, 2024, to raise Rs 5,000 crore through an Initial Public Offering (IPO). The luxury hospitality chain plans to utilize the funds primarily for debt repayment and general corporate purposes.

IPO Breakdown
The Schloss Bangalore IPO will raise Rs 3,000 crore through a fresh issue of shares, while Rs 2,000 crore will be generated via an offer-for-sale (OFS) by its promoter, Project Ballet Bangalore Holdings (DIFC). The latter is an institutionally owned entity and the sole promoter offering shares in this OFS.

Additionally, the company may consider a pre-IPO placement of Rs 600 crore via a preferential offer. Should this placement occur, the fresh issue size would be reduced accordingly before the company files its Red Herring Prospectus with the Registrar of Companies (ROC) or officially launches the IPO for public subscription.

Utilising IPO Proceeds
Schloss Bangalore, which operates a chain of high-end hotels and resorts under the Leela brand, has outlined its intended use for the IPO proceeds. A significant portion-Rs 2,700 crore from the fresh issue-will be allocated towards repaying debt, both at the parent company and its subsidiaries. The company's consolidated debt stood at Rs 4,052.5 crore as of May 2024.

The remaining proceeds from the fresh issue will be used for general corporate purposes, allowing the company to enhance its operational efficiency and fund potential growth opportunities. Proceeds from the offer-for-sale will directly benefit the promoter, providing a liquidity event for Project Ballet Bangalore Holdings (DIFC).

Founded in 1986 by the late Captain C.P. Krishnan Nair, Schloss Bangalore owns and operates a prestigious portfolio of luxury properties under the Leela brand. The company currently manages 3,382 keys across 12 operational hotels. These include five owned hotels, six hotels managed through long-term hotel management agreements, and one franchise-operated hotel.

Schloss Bangalore's properties are synonymous with luxury, offering opulent accommodations, world-class dining, and bespoke experiences. The company competes directly with other prominent players in the luxury hospitality sector, including Indian Hotels Company Limited (IHCL), EIH Limited, Chalet Hotels, and Juniper Hotels.

Financial Performance
The financial performance of Schloss Bangalore has shown improvement over the past few years. For fiscal 2024, the company posted a net loss of Rs 2.1 crore, a significant reduction from the Rs 61.7 crore loss in FY23 and the Rs 319.8 crore loss in FY22. However, despite narrowing losses, the company faces challenges in the early months of fiscal 2025. Between April and May 2024, Schloss reported a loss of Rs 36.4 crore, surpassing the total loss for the entire previous fiscal year.

Despite the recent losses, Schloss Bangalore's revenue growth has been impressive. The company reported revenue of Rs 1,171.5 crore in fiscal 2024, reflecting a 36.2% increase over the previous year. In FY23, its revenue grew by 126% to Rs 860 crore, compared to Rs 380.4 crore in FY22. The robust growth in revenue has been driven by increased demand for luxury accommodations and a rebound in travel and tourism post-pandemic.

Schloss Bangalore operates in a competitive space, going head-to-head with listed giants like Indian Hotels, EIH, Chalet Hotels, and Juniper Hotels. The luxury hospitality sector has been witnessing a resurgence, driven by increased domestic and international travel, and growing demand for high-end accommodations.

The company's strategy to expand through management agreements and franchise models, in addition to its owned properties, is likely to provide flexibility in scaling its operations while optimizing capital expenditure. However, its debt load has weighed on profitability.

Merchant Bankers
The IPO will be managed by a strong consortium of 11 merchant bankers, including 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. KFin Technologies has been appointed as the official registrar to the issue, managing the administrative aspects of the IPO.