BofA Securities initiates Schloss Bangalore stock with Buy rating

BofA Securities initiated coverage on Schloss Bangalore Ltd (The Leela), a luxury hospitality company, with a Buy rating and a price target of INR520.00. The firm cited the company's strong execution post-Brookfield's 2019 asset acquisition, evidenced by superior average room rate and revenue per available room growth (10%/11% CAGR FY19-25) compared to the broader Indian luxury segment. BofA projects robust future performance, including 12% revenue and 14% EBITDA CAGRs for FY25-28E, alongside a significant strengthening of the balance sheet with net debt expected to reduce from approximately Rs39 billion in FY24 to Rs3 billion by FY28E.

Analysis

Bank of America Securities has initiated coverage on Schloss Bangalore Ltd (The Leela) with a 'Buy' rating and an INR520.00 price target, signaling strong institutional confidence. The positive outlook is anchored in the company's superior operational performance following its 2019 asset acquisition by Brookfield. Specifically, The Leela's owned portfolio has demonstrated a compound annual growth rate of 10% in average room rates and 11% in revenue per available room from FY19-25, outperforming the broader Indian luxury hotel sector's growth of 8% and 9%, respectively. Forward-looking estimates from BofA are robust, projecting a 12% revenue CAGR and 14% EBITDA CAGR for FY25-28E, with earnings growth expected to exceed 90% from a low base. A critical element of the investment thesis is the significant anticipated deleveraging; the company's balance sheet is forecast to strengthen dramatically, with net debt projected to plummet from approximately Rs39 billion in FY24 to Rs3 billion by FY28E, fueled by operational cash flow, promoter capital, and recent IPO proceeds.

Key Decisions for Investors

• Given the 'Buy' initiation, strong growth forecasts, and documented outperformance, investors with a bullish view on the Indian hospitality sector could consider this an attractive entry point or an opportunity to add to existing positions.
• The primary focus for due diligence should be on the company's execution of its aggressive deleveraging plan; investors must monitor quarterly reports to track progress toward the projected net debt reduction, as this is a cornerstone of the valuation thesis.
• It is crucial to continuously benchmark The Leela's revenue per available room (RevPAR) and average room rate (ARR) against Indian luxury market data to ensure its competitive advantage and operational outperformance are sustained.