In today’s Finshots, we break down the Leela Hotels IPO.

The Story

You’re trying to book a luxury hotel in India for a long weekend. You want something indulgent. Maybe a palace by a lake or a sleek rooftop bar in the heart of a metro. But good luck finding a room because despite India’s rising appetite for high end experiences, there simply aren’t enough luxury hotel keys to go around.

Sidebar: “Keys” is an industry term used to quantify capacity and refers to the total number of rooms and suites available across a hotel or a hotel portfolio.

India has around 3.4 million hotel rooms, but less than 11% fall under the organised segment. And when it comes to true luxury, we have just 29,000 rooms across the entire country. That’s 23 luxury rooms per million people. Compare that with 690 in Thailand, 177 in China or 973 in Australia, and the gap becomes glaring.

And yet, demand is booming. A rising middle class, more affluent millennials, destination weddings, spiritual tourism, corporate offsites — everything is pushing the need for upscale stays. To put things in perspective, the luxury hotel market is expected to grow at a CAGR (compound annual growth rate) of 10% over the next few years, while supply is growing at just 6%.

So it’s no surprise that this is the wave The Leela wants to ride. As one of India’s largest homegrown luxury hospitality brands, it already has the brand equity, the palace properties and a well-honed service playbook. What it needs now is capital to grow faster and maybe snap up a few more lakeside views before someone else does. And that’s exactly why it’s gearing up for an IPO, which opens on Monday (May 26th).

It plans to raise ₹3,500 crores through a combination of a fresh issue and an offer for sale (OFS). ₹2,500 crores will come from issuing 5.75 crore new equity shares, while the remaining ₹1,000 crores will be raised through the sale of 2.3 crore shares by the promoter, Project Ballet Bangalore Holdings (DIFC) Pvt Ltd, an affiliate of Brookfield Asset Management. 

If you were to subscribe to the issue, you’d have to buy at least 34 shares, shelling out anywhere between ₹413 and ₹435 per share, which translates to a minimum investment of ₹14,042.

But before you decide whether to bet your money on The Leela, let’s first understand its business.

To begin with, The Leela, owned and operated by Schloss Bangalore Ltd., is the largest pure-play luxury hospitality player in India by number of keys. That’s 3,553 rooms. Now, if you’re wondering what “pure-play luxury” means, unlike its competitors such as Indian Hotels, ITC, EIH, Apeejay Surrendra Park Hotels and SAMHI Hotels, which spread their wings across mid-scale, upscale and luxury segments, The Leela focuses solely on the luxury space. That means the luxury room count for peers is much smaller compared to The Leela’s.

As of FY25, The Leela runs 13 hotels spread across 11 Indian cities, and there’s more in the pipeline — 7 new properties in development that could boost its total room count by around 20%.

The company makes money in three main ways.

First, there are the owned hotels, which are the real revenue drivers. The company directly owns and operates five ultra-luxury hotels — The Leela Palaces in Bengaluru, Chennai, New Delhi, Jaipur and Udaipur. These flagship properties pull in over 90% of its total revenue for FY25.

Next up is the asset-light expansion strategy — the managed and franchised hotels. Not every Leela-branded hotel is owned by the company. It manages seven hotels and franchises one — The Leela Mumbai, which someone else owns. For these, The Leela earns a slice of revenue or profit through management fees. Plus, it charges for technical services and brand licensing. Think staff training, system usage and most importantly, the power of The Leela name. This helps it grow its presence without tying up big chunks of capital in buying properties.

Finally, The Leela is branching out beyond traditional hotels with new ventures. This includes branded residences and serviced apartments — fancy homes managed by The Leela where residents get hotel-style perks like housekeeping, concierge services and wellness access. The company earns fees and royalties from these. And then there’s Arq — a members-only luxury club that’s a fresh take on private clubs. Members pay a subscription fee for access to exclusive experiences, spaces and privileges. Think of it as a luxury version of Soho House, but with the distinct Leela touch.

And what works in its favour is the fact that the luxury hospitality segment has limited supply because it has strong entry barriers. Finding the right land, getting permissions, dealing with regulations and investing a lot of time and money to build a strong luxury brand are all big challenges. This creates an advantage for The Leela, since fewer competitors can easily enter the market, giving it room to grow.

Also since it’s focused solely on the luxury segment, unlike its competitors, it’s able to cater better to travelers who want unique and memorable experiences. This has helped the company achieve higher revenue per available room (RevPAR) compared to the average luxury hotel in India. For example, in FY25, The Leela’s owned hotels had an average room rate (ARR) of ₹22,500 and RevPAR of ₹15,300, which is about 1.4 times higher than the industry average. On top of that, between 2019 and 2024, The Leela’s owned hotels saw a faster RevPAR growth rate at a CAGR of nearly 12%, compared to 8% for the luxury hospitality segment overall.

Also, one of the bright spots is that the company finally turned profitable in FY25, after racking up losses in the earlier years.

So, what changed?

Well, over the past few years, it focused on upgrading its properties, like giving them a fresh look to draw in more guests. It also repositioned the hotels to appeal to travellers seeking luxury, relaxation and wellness.

On the pricing front, it got smarter too. Instead of sticking to fixed rates, some properties in The Leela moved to dynamic pricing — adjusting room rates in real time based on demand to boost revenue. It also introduced tiered pricing for different room types to get the most value out of each stay.

And all of this seems to be working. Revenue from operations grew by around 11% over the previous year, reaching ₹1,300 crores in FY25.

Besides, in FY25, The Leela’s owned hotels had an NPS score of 86, and its overall portfolio scored 85. An NPS score or Net Promoter Score simply shows how happy and loyal customers are, based on how likely they are to recommend the company to others. For comparison, in 2024, other top hotel brands in India had lower scores. Indian Hotels scored 73, EIH scored 80 and ITC Hotels scored just over 80.

That said, there are a few things you might want to keep an eye on.

First up, occupancy. While the broader industry has been clocking in rates between 70–78% over the past couple of years, The Leela is still at around 65%. That’s a bit underwhelming. One reason could be its laser focus on the luxury segment. Unlike peers who cater to a broader mix, from mid-scale to high-end, The Leela’s niche strategy might limit its ability to fill rooms consistently.

Next comes inflation. If costs start to rise across the board, whether it’s staff salaries, transport, or daily operations, The Leela may not be able to hike prices enough to keep up. That’s because its room rates are already pretty steep. In fact, the ARR at its owned hotels has grown by nearly double the inflation rate. That means pushing prices even higher could scare away guests, making it tricky to protect profits.

Then let’s talk about the IPO itself. Almost half the money raised is expected to go toward repaying debt, which could help clean up the balance sheet and leave the company debt-free. Only the rest will be used for day to day regular corporate purposes.

And finally, there’s valuation — the part investors usually sweat over. At the higher end of the price band of ₹435, the stock is expected to be valued at a price to earnings ratio (P/E ratio) of around 305 and a price to book ratio (P/B ratio) of 2.3. In comparison, its peers trade at a median P/E of 88 and an average P/B of 5.

In simple terms, investors are paying a lot more for every rupee of The Leela’s profit compared to other hotel stocks. That makes the stock look expensive based on its earnings. But when you look at the price compared to its net assets, it’s actually cheaper than the industry average. 

So sure, The Leela has room to grow. The brand, the positioning and the expansion plan are all working in its favour. But there are a few wrinkles to iron out too. And whether you see this as a luxury worth betting on or not, just remember to pack a little caution along with your optimism.

Until next time...

Fun fact: “Schloss” is a German word that means palace or castle, which fits the luxury positioning of The Leela brand.

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