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The initial public offering (IPO) of Schloss Bangalore, the operator of luxury hotels and resorts under The Leela brand, witnessed a modest start on its first day of subscription. The Rs 3,500-crore IPO was subscribed approximately 1% within the first hour of trading on May 26th. This lukewarm initial response underscores the cautious sentiment prevailing among investors, who are carefully evaluating the company's prospects and financial performance before committing their funds. The IPO's subscription levels are closely monitored by market analysts and investors alike, as they provide valuable insights into the overall demand for the offering and the potential for future price appreciation. A slow start, as seen in this case, can sometimes indicate underlying concerns about the company's valuation, growth prospects, or the prevailing market conditions. Conversely, a strong initial subscription can signal high investor confidence and potentially lead to a successful listing and subsequent performance. The retail portion of the IPO, however, demonstrated comparatively stronger interest, being subscribed by 7%. Non-Institutional Investors (NII) also participated, booking their reserved portion by 1%. Qualified Institutional Buyers (QIBs), a crucial segment of investors, remained largely inactive during the initial hours of the IPO, awaiting further developments before making any substantial bids. The IPO comprises a fresh issue of shares worth Rs 2,500 crore and an offer-for-sale of shares worth Rs 1,000 crore by promoter Project Ballet Bangalore Holdings (DIFC). The company has set a price band of Rs 413-435 per share for the IPO, and investors can bid for a minimum of 34 shares, and in multiples thereafter. The price band plays a critical role in determining the overall valuation of the company and influences investor decisions. A higher price band may indicate the company's confidence in its growth potential, while a lower price band may be aimed at attracting a wider range of investors. The minimum lot size requirement also impacts the accessibility of the IPO for different types of investors, with smaller lot sizes generally making the offering more attractive to retail investors.
The grey market premium (GMP) for Leela Hotels IPO indicated a slight premium over the IPO price. According to Investorgain, the unlisted shares of the company were trading at Rs 450 apiece in the grey market, implying a GMP of around 3.45 percent (Rs 15) over the IPO price of Rs 435 apiece. IPO Watch reported a similar grey market premium of Rs 14 over the IPO price, with unlisted shares trading at Rs 449 apiece. The grey market premium serves as an informal indicator of investor sentiment and the potential listing gains. A higher GMP suggests that investors are willing to pay a premium for the shares in the grey market, indicating strong demand and the expectation of a positive listing. Conversely, a lower or negative GMP may signal weak demand and potential listing losses. However, it's important to note that the grey market is an unregulated market, and the premiums are subject to volatility and speculation. Therefore, investors should not solely rely on GMP when making investment decisions. Bajaj Broking recommended investors to 'Subscribe for long term', but cautioned that the company had reported a net loss of Rs 2.13 crore during FY24, and a further Rs 36.4 crore loss in just the first two months of FY25. This is despite strong revenue growth and a notable EBITDA increase. "Investors should be cautious, recognizing that this IPO is largely a bet on a turnaround and brand-led growth story, rather than a value play based on existing fundamentals," the brokerage said. The brokerage's recommendation highlights the inherent risks associated with investing in companies that are not yet profitable. While the potential for future growth and profitability may be attractive, investors should carefully assess the company's turnaround strategy and its ability to execute it effectively. A strong brand reputation, as in the case of Leela Hotels, can be a significant advantage, but it does not guarantee success.
Schloss Bangalore intends to utilise Rs 2,300 crore out of net fresh issue proceeds for repayment of its debt, and the remainder for general corporate purposes. The use of funds is a crucial aspect of any IPO, as it provides insights into the company's strategic priorities and its plans for future growth. Repaying debt can improve the company's financial health and reduce its interest expenses, freeing up resources for other investments. Allocating funds for general corporate purposes provides the company with flexibility to pursue various growth opportunities, such as expanding its operations, developing new products or services, or acquiring other businesses. The company competes with listed entities like The Indian Hotels Company, EIH, Chalet Hotels, Juniper Hotels and ITC Hotels. The company claimed to be one of the largest luxury hospitality companies by number of keys in India. It operates 3,553 keys across 13 hotels of portfolio comprising The Leela Palaces, The Leela Hotels and The Leela Resorts. The competitive landscape is a significant factor to consider when evaluating an investment opportunity. Understanding the company's competitors, their strengths and weaknesses, and their market share can provide valuable insights into the company's ability to succeed in the long term. The fact that Leela Hotels operates a substantial number of keys across its properties suggests that it has a significant presence in the luxury hospitality market, but its profitability and efficiency will ultimately determine its success. The IPO is managed by a consortium of investment banks, including JM Financial, BofA Securities India, Morgan Stanley India Company, JP Morgan India, Kotak Mahindra Capital Company, Axis Capital, Citigroup Global Markets India, IIFL Capital Services, ICICI Securities, Motilal Oswal Investment Advisors, and SBI Capital Markets. The involvement of reputable investment banks can provide investors with a degree of confidence in the IPO process and the company's prospects. Finally, Schloss Bangalore had raised Rs 1,575 crore via anchor book on May 23. Marquee global and domestic investors participated in the anchor book, including WF Asian Reconnaissance Fund, Government Pension Fund Global, CLSA Global, HDFC Mutual Fund, ICICI Prudential MF, and SBI General Insurance Company. The participation of anchor investors, particularly institutional investors, is often seen as a positive sign, as it indicates that sophisticated investors have conducted thorough due diligence and are willing to invest in the company's future. Overall, the Leela Hotels IPO presents a mixed picture, with a slow initial subscription, a slight grey market premium, a recommendation to subscribe for the long term with caution, and a net loss reported during the last fiscal year and the start of this fiscal year, but participation by large anchor investors. Investors should carefully weigh these factors before making an investment decision.
Source: Leela Hotels IPO subscribed 1% on Day 1 so far; retail portion booked 7%: Check the latest GMP