Leela Hotels Has Morgan Stanley 'Overweight' On Luxury Demand, Attractive Valuation

Schloss Bangalore Ltd., the operator of The Leela brand of hotels, has received an 'overweight' rating from Morgan Stanley, with a price target of Rs 549. This rating is driven by strong demand for luxury experiences, iconic assets, and an attractive valuation, the brokerage noted.

Morgan Stanley's report highlighted the unique position of Schloss Bangalore in the Indian luxury market. "Schloss Bangalore, which owns and manages hotels under The Leela brand, is one of the few pure-play luxury hotel brands from India," the report stated.

The company operates an asset-heavy business model, with 93% of its operating revenue coming from five owned hotels. These properties are renowned for blending historical architectural styles with modern luxury, earning international awards and leading industry metrics in RevPAR and Ebitda margins.

The report emphasises the strong demand for luxury hotels in India, coupled with moderate supply growth due to the high capital expenditure nature of the business. "The demand-supply mismatch supports our higher-for-longer RevPAR cycle thesis," Morgan Stanley noted.

The firm expects rising room rates and high occupancy to drive 12% annual Ebitda growth through FY27, with net income increasing ninefold as interest costs decrease. The nearly net-debt-free balance sheet will allow free cash flow to fund the upcoming capex cycle, which includes five new hotels with 475 rooms set to open by FY28.

Morgan Stanley sees significant upside potential for Schloss Bangalore's stock. "The stock is trading at 18.5 times Fiscal Year 2027 Enterprise Value to Earnings Before Interest, Taxes, Depreciation, and Amortisation, compared to 29 times one-year forward EV/Ebitda on average for branded hotel plays like Indian Hotels Company Ltd," the report explained.

Despite the positive outlook, Morgan Stanley cautions about concentration risk, as the top three properties account for over 70% of revenue. "A sharp luxury downcycle is another risk to watch as the business has high fixed costs and capex plans," the report warns.