Driven by a “higher-for-longer” upcycle in the luxury hospitality segment, global brokerage firm Morgan Stanley initiated coverage on Schloss Bangalore, the company that owns and operates luxury hotels under the ‘The Leela’ brand, with an ‘Overweight’ rating and a target price of Rs 549.
The target implies an upside potential of 35% from the stock’s closing price on Monday.
Following this, the shares of the company rose 5% to hit an intraday high of Rs 427.20 on the BSE.
Morgan Stanley’s positive view is underpinned by a “higher-for-longer” upcycle in the luxury hospitality segment, strong demand for premium travel experiences, and the company’s attractive valuation.
The brokerage also cited Schloss Bangalore’s low net debt position and steady execution as key drivers for potential re-rating, while flagging concentration risk as a key factor to monitor.
According to the brokerage’s note, Schloss Bangalore is one of the few listed pure-play luxury hotel operators in India, with a portfolio of iconic heritage-style hotels infused with modern architecture.
The company owns five operational properties, which account for 93% of its revenue, and has international awards and industry-leading revenue per available room ( RevPAR) and EBITDA margins to its credit.
Morgan Stanley highlighted that these operational metrics reflect the premium positioning of the brand in India’s luxury hospitality segment.
The report also noted that demand for luxury hotels in India remains robust, even as incremental supply additions are moderate due to high capital expenditure requirements.
Also read: Jane Street probe: Sebi chief Tuhin Kanta Pandey rules out weekly expiry ban, signals tighter derivatives watch
This demand-supply mismatch supports a sustained uptrend in RevPAR. The brokerage expects annual EBITDA growth of 12% through FY27, driven by rising room rates and healthy occupancy levels. Net income is expected to grow ninefold, supported by limited increase in interest costs.
Morgan Stanley also stated that the company is nearly net-debt-free, with sufficient free cash flows to fund its upcoming capital expenditure cycle. Schloss Bangalore plans to open five new hotels comprising 475 rooms, including one under a joint venture, with all properties expected to be operational by FY28.
Adjusted for asset revaluation and promoter recapitalization, Morgan Stanley estimates the company’s return on capital employed (ROCE) at around 10% by FY25, up from a reported 7.3%.
In terms of valuation, the brokerage sees room for further upside. The stock currently trades at 18.5x EV/EBITDA on FY27 estimates, compared to an average of 29x for listed luxury hotel peers such as IHCL and owners of asset-light models like Chalet and Juniper, which trade at around 20x.
In its base case, Morgan Stanley applies a 25x multiple to Schloss’s FY27 EBITDA, with a bull case multiple of 30x, aligned with IHCL’s valuation, suggesting a potential re-rating.
The brokerage, however, flagged that over 70% of the company’s revenue is concentrated in its top three properties, indicating a notable concentration risk. Additionally, a sharp cyclical downturn in luxury demand could pressure margins, given the company’s high fixed cost and capital-intensive nature.
Around noon today, the shares of Schloss Bangalore were trading 4.12% higher at Rs 423.40 on the BSE.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)
The target implies an upside potential of 35% from the stock’s closing price on Monday.
Following this, the shares of the company rose 5% to hit an intraday high of Rs 427.20 on the BSE.
Morgan Stanley’s positive view is underpinned by a “higher-for-longer” upcycle in the luxury hospitality segment, strong demand for premium travel experiences, and the company’s attractive valuation.
The brokerage also cited Schloss Bangalore’s low net debt position and steady execution as key drivers for potential re-rating, while flagging concentration risk as a key factor to monitor.
According to the brokerage’s note, Schloss Bangalore is one of the few listed pure-play luxury hotel operators in India, with a portfolio of iconic heritage-style hotels infused with modern architecture.
The company owns five operational properties, which account for 93% of its revenue, and has international awards and industry-leading revenue per available room ( RevPAR) and EBITDA margins to its credit.
Morgan Stanley highlighted that these operational metrics reflect the premium positioning of the brand in India’s luxury hospitality segment.
The report also noted that demand for luxury hotels in India remains robust, even as incremental supply additions are moderate due to high capital expenditure requirements.
Also read: Jane Street probe: Sebi chief Tuhin Kanta Pandey rules out weekly expiry ban, signals tighter derivatives watch
This demand-supply mismatch supports a sustained uptrend in RevPAR. The brokerage expects annual EBITDA growth of 12% through FY27, driven by rising room rates and healthy occupancy levels. Net income is expected to grow ninefold, supported by limited increase in interest costs.
Morgan Stanley also stated that the company is nearly net-debt-free, with sufficient free cash flows to fund its upcoming capital expenditure cycle. Schloss Bangalore plans to open five new hotels comprising 475 rooms, including one under a joint venture, with all properties expected to be operational by FY28.
Adjusted for asset revaluation and promoter recapitalization, Morgan Stanley estimates the company’s return on capital employed (ROCE) at around 10% by FY25, up from a reported 7.3%.
In terms of valuation, the brokerage sees room for further upside. The stock currently trades at 18.5x EV/EBITDA on FY27 estimates, compared to an average of 29x for listed luxury hotel peers such as IHCL and owners of asset-light models like Chalet and Juniper, which trade at around 20x.
In its base case, Morgan Stanley applies a 25x multiple to Schloss’s FY27 EBITDA, with a bull case multiple of 30x, aligned with IHCL’s valuation, suggesting a potential re-rating.
The brokerage, however, flagged that over 70% of the company’s revenue is concentrated in its top three properties, indicating a notable concentration risk. Additionally, a sharp cyclical downturn in luxury demand could pressure margins, given the company’s high fixed cost and capital-intensive nature.
Around noon today, the shares of Schloss Bangalore were trading 4.12% higher at Rs 423.40 on the BSE.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)
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