Leela Hotels IPO subscribed 17% on Day 2; retail portion booked 41%: Should you apply?

Schloss Bangalore

The Rs 3,500-crore IPO of Schloss Bangalore, the operator of luxury hotels and resorts chain under The Leela brand, has been subscribed around 17 percent on its second day of biding (May 27).

Schloss Bangalore's IPO received bids for nearly 76.99 lakh shares, as against the offer size of 4.66 crore shares, according to data on the NSE. Retail investors subscribed their reserved portion by 41 percent, while Non-Institutional Investors (NII) booked their reserved portion by 11 percent. Qualified Institutional Buyers (QIBs) also subscribed the portion reserved for them nearly 11 percent.

Schloss Bangalore's IPO comprises a fresh issue of shares worth Rs 2,500 crore, and an offer-for-sale of shares worth Rs 1,000 crore by promoter Project Ballet Bangalore Holdings (DIFC). The public issue will remain open for public subscription from May 26 to May 28. The company has set a price band of Rs 413-435 per share for the IPO. Investors can bid for a minimum of 34 shares, requiring an investment of Rs 14,790, and in multiples thereafter.

Leela Hotels IPO GMP:

Ahead of their listing, the unlisted shares of the company were trading at Rs 439 apiece in the grey market, according to data on Investorgain at 5 pm. This implies a grey market premium (GMP) of 0.92 percent (Rs 4) over the IPO price of Rs 435 per share. Notably, this is significantly lower than the 2.87 percent (Rs 12.5) GMP reported in the morning.

According to IPO Watch, the unlisted shares of the company were trading with a grey market premium of Rs 14 over the IPO price at Rs 449 apiece.

Should you apply?

Bajaj Broking recommended investors to 'Subscribe for long term'. The brokerage noted that the company had reported a net loss of Rs 2.13 crore during FY24, and a further Rs 36.4 crore loss in just the first two months of FY25, despite strong revenue growth and a notable EBITDA increase. "Investors should be cautious, recognizing that this IPO is largely a bet on a turnaround and brand-led growth story, rather than a value play based on existing fundamentals," the brokerage said.

Gaurav Garg from Lemonn Markets Desk noted that Schloss Bangalore IPO is a long-term bet on the formalization and premiumization of India’s travel and hospitality sector. “Investors with a patient outlook and appetite for high-quality consumption plays should consider subscribing to the issue,” he said.

"As the company deleverages and executes its expansion plans, shareholders may be well-positioned to benefit from compounding gains in a high-margin business… Especially when considered alongside peers like Chalet Hotels or Indian Hotels, which trade at richer valuations with similar or lower growth trajectories," Garg further said.

Deven Choksey has also assigned a 'subscribe' rating for the IPO. "We believe the Schloss is expected to deliver improved earnings growth, better profitability led by reduced debt burden, healthy pipeline of upcoming hotels and industry leading sustainable margins driven by luxury segment focus," the brokerage said.

Schloss Bangalore intends to utilise Rs 2,300 crore out of net fresh issue proceeds for repayment of its debt, and the remainder for general corporate purposes.

The company, that competes with listed entities like The Indian Hotels Company, EIH, Chalet Hotels, Juniper Hotels and ITC Hotels, claimed to be one of the largest luxury hospitality companies by number of keys in India. It operates 3,553 keys across 13 hotels of portfolio comprising The Leela Palaces, The Leela Hotels and The Leela Resorts.

JM Financial, BofA Securities India, Morgan Stanley India Company, JP Morgan India, Kotak Mahindra Capital Company, Axis Capital, Citigroup Global Markets India, IIFL Capital Services, ICICI Securities, Motilal Oswal Investment Advisors, and SBI Capital Markets are acting as the merchant bankers for the issue.

Anchor book:

Brookfield-backed Schloss Bangalore had raised Rs 1,575 crore via anchor book on May 23. The company in its filing to exchanges said it has finalised allocation of 3.62 crore equity shares to anchor investors at a price of Rs 435 per share.

Marquee global investors turned shareholders in the company included WF Asian Reconnaissance Fund, Government Pension Fund Global, CLSA Global, Eastspring Investments, Citigroup Global, Societe Generale, Integrated Core Strategies, Fidelity, and Goldman Sachs, Tocu Europe, Hudson Bay Master Fund, and Moran Stanley.

Domestic institutional investors including HDFC Mutual Fund, ICICI Prudential MF, Nippon Life India, WhiteOal Capital, 360 ONE Special Opportunities Fund, Invesco, Axis Max Life Insurance, Baroda BNP Paribas MF, Aditya Birla Sun Life Insurance, JM Financial MF, Mirae Asset, and SBI General Insurance Company also invested in Schloss Bangalore that operates 13 luxury hotels with 3,553 keys in India.

"Out of total allocation of 3.62 crore equity shares to anchor investors, 1.42 crore equity shares were allocated to 9 domestic mutual funds which have applied through 20 schemes," the Mumbai-based company said in its filing.

Also read: Should you check into Schloss Bangalore's public issue?

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