The Expanding Horizon of India’s Hospitality Sector: Upcoming IPOs and Market Dynamics
The hotel industry in India is on the brink of a significant transformation, with the potential debut of four new publicly-listed companies. According to a recent note by Jefferies, these companies—Schloss Bangalore, Ventive Hospitality, Brigade Hotels, and the demerger of ITC Hotels—are poised to capitalize on the robust outlook for the hospitality sector. Collectively, they aim to raise approximately ₹8,000 crore, signaling a strong investor interest in the market.
Fundraising and IPO Landscape
In the past few months, Schloss Bangalore, Ventive Hospitality, and Brigade Hotels have filed their IPO prospectuses, with plans to raise around ₹8,000 crore. This includes ₹6,000 crore through fresh issues, a significant move following Chalet Hotels’ ₹1,000 crore Qualified Institutional Placement (QIP) earlier this year. The IPOs of Samhi, Park, and Juniper have also contributed to a cumulative fundraising of ₹4,000 crore, highlighting a growing trend in the hospitality sector.
ITC Ltd is also preparing for the demerger of its hotel business, expected in the fourth quarter of FY25. However, this move will not involve any fundraising efforts. Jefferies notes that while IPO stocks in the hospitality sector have seen varied performance—ranging from 0% to 52% above their issue prices over the past year—there remains a strong belief in the sector’s potential.
Leveraging Strong Hospitality Trends
The demand for travel in India has remained robust, even as growth in other consumer segments has normalized post-COVID-19. High pricing across various segments has not deterred consumers, indicating a prioritization of travel over other spending categories. This trend is further supported by macroeconomic factors and a supply-demand imbalance in the sector, which continues to drive growth in average room rates (ARRs).
Jefferies emphasizes that the hospitality sector is well-positioned to benefit from these trends, as Indian consumers increasingly seek travel experiences. The combination of a favorable demand environment and investor interest suggests a promising future for the industry.
Background on Upcoming IPOs
Schloss Bangalore operates under the luxury Leela brand, utilizing an owner-operator model that includes a mix of owned and managed properties. Ventive Hospitality and Brigade Hotels, on the other hand, are hotel asset developers with capital-intensive business models.
Schloss boasts an inventory of 3,382 keys, with plans to add 833 more. Ventive currently manages 2,036 keys and aims to expand by 367 keys, while Brigade operates 1,604 keys with plans for a significant increase of 996 keys. Each company has a distinct regional focus, with Schloss having a diverse presence across metro cities, Ventive concentrating on Pune, Bangalore, and the Maldives, and Brigade primarily operating in South India.
Real Estate Players Driving Hotel Listings
The trend of real estate players exploring hotel business listings is becoming increasingly prominent. Schloss and Ventive are backed by private equity and asset management firms, while Brigade Hotels is a division of Brigade Group, a South India-based real estate developer. This strategy mirrors that of other real estate firms like DB Realty and Prestige Estates, which have also expressed interest in hotel listings. These companies often collaborate with leading hotel brands such as Marriott, Hilton, and IHG for operations and management.
Financial Challenges and Leverage
Despite the growth potential, the three companies face challenges regarding profitability. Jefferies highlights that Schloss and Ventive are relatively larger players, with revenue and EBITDA figures ranging from ₹1,200-1,800 crore and ₹500-800 crore, respectively. Brigade, being smaller, reports revenue of ₹400 crore and EBITDA of ₹150 crore. However, all three companies have either reported marginal profits or losses, and their balance sheets are heavily leveraged, with FY24 net debt-to-EBITDA ratios ranging from 4x to 7x.
Conclusion
In summary, the upcoming IPOs of Schloss Bangalore, Ventive Hospitality, Brigade Hotels, and the demerger of ITC Hotels reflect the strong growth narrative of India’s hospitality sector. With a favorable demand environment, increasing investor interest, and robust expansion plans, the sector appears well-positioned for long-term growth. As the hospitality landscape evolves, these developments will be closely watched by investors and industry stakeholders alike.
Disclaimer
The views and recommendations made above are those of individual analysts or broking companies and do not reflect the opinions of Mint. Investors are advised to consult certified experts before making any investment decisions.
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