Morgan Stanley has reiterated its ‘Overweight’ rating on Schloss Bangalore, the company that owns and manages the iconic ‘The Leela’ brand of luxury hotels in India. The global brokerage cited strong industry tailwinds, a high-quality portfolio of luxury assets, low net debt levels, and an attractive valuation as key reasons behind its bullish stance. While acknowledging potential concentration risks, Morgan Stanley believes that with consistent execution and strategic capex deployment, The Leela could see a substantial re-rating in the coming years.
In the base case scenario, the brokerage has a target price of ₹549, implying an upside potential of 35 percent from previous close.
Morgan Stanley said Schloss Bangalore stands out as one of the rare pure-play luxury hotel operators in India. With 93 percent of its operating revenue coming from five owned hotels, the business remains asset-heavy and deeply entrenched in India’s premium hospitality space. The Leela’s properties—known for their blend of classical Indian architecture and modern luxury—enjoy premium pricing and boast industry-leading EBITDA margins and RevPAR (Revenue Per Available Room).
According to Morgan Stanley, these hotels have also earned multiple international accolades, further reinforcing the brand’s positioning as a top-tier hospitality player. “The Leela is one of the most iconic hotel brands in India and its consistent RevPAR outperformance showcases its ability to capture rising demand for high-end travel experiences,” the brokerage said.
RevPAR Upcycle To Stay Higher for Longer
The brokerage expects the luxury hospitality sector in India to benefit from a ‘higher-for-longer’ RevPAR cycle due to steady demand and limited new supply, which is constrained by the capital-intensive nature of the business. Morgan Stanley sees average room rates rising alongside occupancies, driving a projected 12 percent annual EBITDA growth through FY27.
Morgan Stanley added that net income could jump ninefold by FY27, helped by lower interest outgo as the company’s balance sheet is now almost net debt-free. Free cash flows will support a planned capex cycle, including the development of five new properties totaling 475 rooms—one of which will be under a joint venture. These additions are expected to go live by FY28.
“While reported ROCE stood at 7.3 percent in FY25, adjusting for asset revaluation ( ₹13 billion) and recapitalization-linked cash reserves ( ₹12 billion), we estimate an adjusted ROCE closer to 10 percent,” the brokerage noted.
Valuation and Re-Rating Potential
Currently, the stock trades at 18.5x FY27 EV/EBITDA—well below the sector average. Morgan Stanley compared this to the 29x forward EV/EBITDA for branded hotel peers like Indian Hotels Company Limited (IHCL) and 20x for asset owners like Chalet and Juniper Hotels. Given the upcycle in RevPAR and The Leela’s strong execution, the brokerage assigned a target multiple of 25x in its base case and 30x in the bull case, implying up to 35 percent upside.
“We believe the stock can re-rate closer to IHCL’s multiple as the new hotels scale up, earnings grow, and the luxury cycle sustains. Our bull case target price is ₹664, while the base case is ₹549. The bear case, based on a flat RevPAR trajectory and 18x multiple, implies a price of ₹302,” Morgan Stanley added.
Return Metrics to Improve with Capex Deployment
Although FY25 ROCE appears subdued compared to peers like IHCL (20%), EIH (21%), and ITC Hotels (9%), Morgan Stanley expects return ratios to improve meaningfully post FY28. The recent ₹12 billion recapitalization will fund the next phase of growth, ensuring capex is met without straining the balance sheet.
The brokerage also pointed out that most of the company’s interest costs currently consume a large share of EBIT, keeping net profit margins low. However, as capex begins to generate returns and debt remains minimal, return on equity (RoE) is expected to improve from the current 1–2 percent range.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
