The Leela IPO booked 9% on Day 2 so far; GMP at 2.5%. Should you subscribe?

Continuing to receive a lagging response from the investors, the initial public offering (IPO) of Schloss Bangalore Limited, the operator of The Leela Palaces, Hotels & Resorts, has received only a 9% subscription so far on the second day of the process.

The highest subscription was witnessed in the retail investors category, which was booked 30% by 12 PM on Tuesday. Meanwhile, non-institutional investors (NIIs) and qualified institutional buyers (QIBs) had subscribed to their allocation by 6% and 3% respectively.

The issue, which opened for public subscription on Monday, was subscribed to by just 6% on the first day.

The IPO attracted a subscription of 20% from the retail investors, while the non-institutional investors (NIIs) and qualified institutional buyers (QIBs) subscribed to the issue by 3% each on the first day.

Ahead of the launch of its public issue, the company secured Rs 1,575 crore from 47 prominent domestic and global anchor investors, with shares allotted at the upper end of the price band at Rs 435 apiece.

Schloss Bangalore Limited allotted over 3.62 crore equity shares to anchor investors, including 1.42 crore shares allocated to nine domestic mutual funds across a total of 20 schemes.Among the top global funds that have invested in the company are Goldman Sachs, Fidelity, and Societe Generale.The Rs 3,500 crore IPO comprises a fresh issue of Rs 2,500 crore and an offer for sale (OFS) valued at Rs 1,000 crore.

The Leela GMP

Schloss Bangalore shares are trading at a grey market premium of 2.5%, or Rs 11-12, in the unlisted market ahead of their D-Street debut.

Also read: Coal India unit CMPDIL files for initial public offering

Should you subscribe to The Leela IPO?

Here is what brokerage firms have to say about the issue:

SBI Securities

The company is valued at an FY25 EV/EBITDA multiple of 26.3x at post-issue capital of the upper price band. The company’s Revenue/EBITDA has grown at a CAGR of 23%/25% respectively over the last 2 years, while on a net basis, the business has turned profitable in FY25.

The company’s presence in the luxury space offers high growth opportunities as the luxury segment within the hospitality sector is likely to grow at a higher pace. The company will repay its debt from the IPO proceeds, which will result in lower D/E from the current 1.1x and improved profitability.

Bajaj Broking

Bajaj Broking recommends subscribing to the issue for the long term.

Despite a revenue rise and EBITDA growth to Rs 600 crore in FY24, Schloss posted a net loss of Rs 2.13 crore for the year and an additional Rs 36.4 crore loss in the first two months of FY25.

Its negative EPS (Rs –0.12) and net asset value (Rs –160.57) make standard valuation ratios like P/E and RoNW irrelevant or skewed.

The company’s valuation appears steep compared to profitable peers like Indian Hotels and EIH, despite its strong brand and asset-light model. Investors are advised to approach the IPO with caution, as it is more of a brand-led growth bet than one backed by current fundamentals.

Lemonn Markets Desk

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

“As the company deleverages and executes its expansion plans, shareholders may be well-positioned to benefit from compounding gains in a high-margin business,” he added.

The Leela IPO key dates

The IPO of Schloss Bangalore Limited (The Leela) opened for subscription on May 26, and will close on May 28. Share allotment is expected on May 29, while the company is scheduled to debut on the stock exchanges on June 2.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)