Morgan Stanley rates Leela Hotels ‘overweight’ on strong luxury demand and promising valuation
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Schloss Bangalore Ltd., the company behind the iconic Leela hotel brand, has received an 'overweight' rating from Morgan Stanley, citing robust demand for luxury stays, the firm’s prestigious properties, and an appealing valuation.
The global brokerage has set a price target of ₹549 for the company.
According to the report, Schloss Bangalore is one of India’s rare pure-play luxury hotel operators, with 93% of its revenue generated from five owned, high-end properties. These hotels, which combine heritage-inspired architecture with contemporary luxury, continue to garner global recognition and lead industry benchmarks in both RevPAR (Revenue Per Available Room) and EBITDA margins.
Morgan Stanley emphasised that the outlook for India's luxury hospitality segment is particularly strong, with rising demand and only moderate supply growth due to the capital-intensive nature of luxury hotel development. “The demand-supply mismatch supports our higher-for-longer RevPAR cycle thesis,” the brokerage stated.
The report forecasts a 12% compound annual growth rate (CAGR) in EBITDA through FY27, with a projected ninefold jump in net income as interest burdens ease. With a near net-debt-free financial position, the company is expected to self-fund a new capital expenditure phase, which includes launching five additional hotels with a total of 475 rooms by FY28.
Morgan Stanley believes Schloss Bangalore’s current stock valuation presents a compelling investment opportunity. “The stock is trading at 18.5 times FY27 EV/EBITDA, compared to an average of 29 times one-year forward EV/EBITDA for peers like Indian Hotels Company Ltd,” the report said.
However, the firm also highlighted certain risks. It noted that over 70% of the company’s revenue comes from its top three properties, creating a concentration risk. Additionally, any downturn in the luxury travel segment could be challenging for the company, given its fixed costs and upcoming capital expenditure commitments.