Temporary blip due to Indo-Pak tensions, but luxury hotels to recover soon: Brookfield ahead of Leela IPO

(Left) Anuraag Bhatnagar, CEO of Schloss Bangalore, and (middle) Ankur Gupta, managing partner and head of real estate for Asia Pacific and Middle East for Brookfield

The current tensions between India and Pakistan in the wake of India executing airstrikes as part of Operation Sindoor has caused a "temporary blip" in tourism, but cancelled plans are being rebooked as the armed phase of the conflict has mostly subsided, said the management of Brookfield Asset Management-promoted Leela Palaces, Hotels, and Resorts, which is preparing to list as Schloss Bangalore Ltd in a Rs 3,500 crore initial public offering.

Post the IPO, Brookfield will own around 76% stake in Schloss.

Anuraag Bhatnagar, CEO of Schloss Bangalore, and Ankur Gupta, managing partner and head of real estate for Asia Pacific and Middle East for Brookfield, said in an interaction with Moneycontrol that the company, the second Brookfield-promoted entity in India headed to public markets after the REIT Brookfield India Real Estate Trust, has broad, thematic plans to expand in the Indian market, including business hotels, hill stations, spiritual destinations, among others.

The company owns five hotels and manages eight more, totalling 3,500 keys across India. In its near-to-medium term pipeline, The Leela plans to expand its portfolio to twenty properties, including ten owned and ten managed properties. Bhatnagar and Gupta said that the company will aim to leverage domestic and overseas tourism almost equally. While acknowledging that international tourism is yet to recover from the low base effect, the luxury market aimed at international tourists is still underserved.

Edited excerpts

Q. Do you think you could have waited a little bit more before launching the IPO, given all the volatility in the markets, geopolitical issues, and the tariffs?

Ankur Gupta: This is a perfect time to go ahead with this. Businesses are not about timing. Businesses have a certain business plan and momentum. We are an operator, asset manager, investor, fiduciary to the board, etc, and all of those things are important for us. Nobody always gets the timing right. We're not here to time anything. We spent the last three to four months engaging with a lot of investors who are banks, domestic, international, global, investors, and the reception has been phenomenal. People have spent time on appreciating the unique nature of this business and then when people are interested, they talk about the numbers, and they need the prospectus, and they talk to banks and to research. So all of these things are a matter of process and time. There are weeks and days of disruption that happen along the way. There's never been a period in time in the world where there is no news, and that's fine. Our business is about creating companies where disruption is short lived, if at all there is disruption.

Q. Have you seen any short term impact in terms of international guests' arrival, because of the geopolitical tension between India and Pakistan, and given that you have a new property in the pipeline in Srinagar?

Anuraag Bhatnagar: There was a temporary blip, but we see that coming back. The groups are coming back, and we are rebooking the same bookings. So, as a sector, luxury is more resilient, and far more inelastic when it comes to peaks and troughs. That was also seen post-COVID, the rebound was higher in luxury segment across all goods and services, including hotels and especially the dealer as well. And the troughs are also very narrow.

Q. Your entire portfolio is in India. Is there any chance of going overseas to any of the locations where a lot of Indians are travelling?

Bhatnagar: Right now, there's so much for us to do. We have created these sub segments where we believe, the Indian is going to be traveling for experiential stays, be it going to hill stations and spiritual travel and wildlife and heritage. There's a lot of excitement around India. A lot of capital is getting deployed, as we speak. We have a strong capex program to build and own these assets and develop these assets, because we are actively looking at all the opportunities. And eventually, I would say, the brand is very popular. The brand has a recall, and possibly the future source markets which have very strong recognition.. the recognition of the Leela brand could be potential source market for us to also put a Leela brand out there. Options are open and available, but we are really focused on what we have to accomplish in India for the moment.

Q. Can you identify some of those markets? Is it Sri Lanka, Maldives, Middle East?

Bhatnagar: I think it is very premature for us to comment on any specific market. But you're right. These are some of the markets which are very popular with Indians, both from an inbound and an outbound perspective as well. And I'm sure as time comes, we'll evaluate all the opportunities.

Gupta: Adjacency is important. We've seen last 20-25 years that lots of Indian companies have ventured abroad, then have scaled back, sometimes at inopportune times. So we have proved in a methodical manner, the world is very connected today, and the brand affinity is global. So you don't have to necessarily be present to get that share of inbound travelers that is established through sales networks and online and physical presence at events. But yes, there is this business logic to some of the markets that you spoke about for the leader to be physically present in operating hotels.

Q. Are you kind of leveraging more of domestic or overseas tourism as well, for the kind of growth that you have pictured?

Bhatnagar: I think our growth has been balanced. If you see in our current portfolio, in terms of guests who come in, our domestic and international is almost equal. The mix between domestic and international is around 48-52. We really believe that both these are going to be powered up.

Because if I just talk about domestic, the story is how India is evolving, how the consumption story is going on, and especially on the luxury segment. We see there's a lot of runway ahead.

International is still not caught up, so it's like two levers for us to because we have, I would say, a larger market share in terms of international traveler between placement in the ultra-luxury and the global recognition that we have been consistently getting so international business once it really powers up to its even to its pre COVID level, wherein industry insights are saying that it's expected to grow at a CAGR of 7.5%-8% year on year from now...(International arrivals) it's just around 10 million for this year, thereabouts, approximately.

And the international arrivals are expected to go to 15 odd million in the next four to five years, which is still on a low base effect. Still, there is an under penetration of luxury keys in India, In India today, everything put together, there are only 29,000 luxury keys in the entire country.

And if you compare India with any other major city itself in the world, they have 3x and 5x. Our per million capita luxury keys is 23; in a place like Thailand, it would have something as high as 800. So there is that kind of a supply constraint, because getting a luxury hotel together, perfecting the art of service style, getting access to capital, access to expertise, develop development capabilities, design capabilities, putting it all together and having a scalable model so that you can run with a fair economic value.