Hotel sector gears up for growth with ₹8,000-crore IPO pipeline and ITC demerger: Jefferies

The hotels’ publicly-listed universe is set to expand with the potential debut of four new companies, aiming to capitalise on the strong outlook for the hotel industry, according to a recent note by Jefferies. The upcoming IPOs of Schloss Bangalore, Ventive Hospitality, and Brigade Hotels aim to raise around ₹8,000 crore collectively, alongside the demerger and listing of ITC Hotels.

Fundraising and IPO Landscape

According to Jefferies, three hospitality companies, Schloss Bangalore, Ventive Hospitality, and Brigade Hotels, have filed their IPO prospectuses in the last 3-4 months. Together, they plan to raise approximately ₹8,000 crore, including ₹6,000 crore through fresh issues. This development follows Chalet Hotels’ ₹1,000 crore QIP earlier this year and IPOs by Samhi, Park, and Juniper, which cumulatively raised ₹4,000 crore. Additionally, ITC Ltd is preparing to demerge its hotel business in the fourth quarter of FY25, although this will not involve a fundraising effort.

Jefferies further noted that IPO stocks in the hospitality sector have largely traded sideways or declined after initial up moves, with returns ranging from 0 per cent to 52 per cent above their issue prices over the past year.

Leveraging Strong Hospitality Trends

Jefferies emphasised that robust travel demand in India has persisted, even as growth in other consumer segments has normalised post-COVID-19. High pricing across segments has not deterred demand, indicating that Indian consumers prioritise travel over other spending categories. This trend is further bolstered by macroeconomic factors and a supply-demand imbalance in the sector, which continues to drive growth in average room rates (ARRs).

Background on Upcoming IPOs

Schloss Bangalore operates under the luxury Leela brand and employs an owner-operator model with a mix of owned and managed properties. Meanwhile, Ventive Hospitality and Brigade Hotels, in contrast, are hotel asset developers with capital-intensive business models, informed the brokerage.

Furthermore, Schloss has an inventory of 3,382 keys, with plans to add 833 keys. Ventive currently manages 2,036 keys and aims to expand by 367 keys, while Brigade operates 1,604 keys and plans to grow by 996 keys. Schloss boasts a diverse regional presence across metro cities, while Ventive focuses on Pune, Bangalore, and the Maldives. Brigade primarily operates in South India, it added.

Real Estate Players Driving Hotel Listings

Jefferies also pointed out that real estate players are increasingly exploring hotel business listings. Schloss and Ventive are backed by private equity and asset management firms, while Brigade Hotels is a division of South India-based real estate developer Brigade Group. Ventive Hospitality originates from Panchshil Realty, a Pune-based firm.

The trend mirrors the strategy of other real estate firms like DB Realty and Prestige Estates, which have expressed interest in hotel listings. These companies, similar to listed players like Chalet, Juniper, and Samhi, collaborate with leading hotel brands such as Marriott, Hilton, and IHG for operations and management.

Financial Challenges and Leverage

Despite their growth potential, all three companies face challenges in profitability. Jefferies highlighted that Schloss and Ventive are relatively larger players, with revenue/EBITDA figures of ₹1,200-1,800 crore/ ₹500-800 crore, while Brigade is smaller, with revenue of ₹400 crore and EBITDA of ₹150 crore. However, all three 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.

In summary, Jefferies believes the upcoming IPOs and ITC Hotels‘ demerger reflect the strong growth narrative of India’s hospitality sector. With a favourable demand environment, increasing investor interest, and robust expansion plans, the sector appears well-positioned for long-term growth. 

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 taking any investment decisions.