When Brookfield-backed luxury hotel chain Schloss Bangalore, now called Leela Palaces Hotels & Resorts, came out with its IPO in May 2025, our view was cautious. The ₹3,500-crore issue offered exposure to a strong luxury hospitality brand, but the investment case had gaps such as high debt, thin reported profit, low capital efficiency and limited margin of safety. That call was not against The Leela brand. It was against the price investors were being asked to pay at that stage. Based on FY25 EBITDA of ₹700 crore, Schloss was being offered at an EV/EBITDA of 23 times the IPO price of ₹435/share.About a year later, the stock deserves a fresh look. At ₹477/share, it is about 9 per cent above the IPO rate (listed top 3 peers are down about 12 per cent since Leela’s listing on June 2, 2025). The business has also delivered a sharper FY26 than what the IPO numbers suggested. Profit after tax rose to over ₹400 crore (vs ₹48 crore in FY25), thanks to IPO-led debt reduction, lower finance costs, stronger operating leverage and double-digit RevPAR-led revenue growth. Net debt/adjusted EBITDA reduced to 2x from 6.5x (using Bloomberg data). Based on FY26 numbers, it is trading at 20.5x EV/EBITDA.Still, at one-year forward EV/EBITDA of nearly 21x based on consensus estimates, the stock is not cheap if we look at peers such as Indian Hotels (28x FY27e EV/EBITDA), ITC Hotels (22x) and Oberoi-owner EIH (17x). Leela’s brand strength, pricing power, deleveraged balance sheet and high margins support the valuation. However, limited listed history, asset-heavy expansion, modest return ratios and margin sustainability risks justify a ‘hold/neutral’ currently.A shift to more positive view would need clearer evidence of sustained Revenue Per Available Room (RevPAR)-led growth, stable 48-50 per cent margins, improving return ratios and successful ramp-up of new assets without renewed leverage.BusinessSince Brookfield acquired The Leela hotels from debt-ridden Hotel Leelaventure (HLV) in 2019, the brand has maintained its stature in Indian luxury hospitality. Leela Palaces Hotels & Resorts is a pure-play luxury hospitality company with a portfolio across owned hotels (higher revenue, higher capital) and managed hotels (lower capital, lower fee income). The company now has 15 operational hotels with 4,162 keys and a pipeline of nine hotels with 1,065 keys in the next five years ( 26 per cent capacity addition). About one-fourth of new rooms/keys will be under managed model.The operating performance is strong. For example, for the five owned palaces, FY26 RevPAR rose 14 per cent to ₹17,460. RevPAR combines room rates and occupancy. ADR, or average daily rate, rose 13 per cent to ₹25,375, while occupancy increased only 1 percentage point to 69 per cent. This tells us growth came mainly from pricing, not simply from filling more rooms. In city hotels, RevPAR in FY26 grew 13 per cent to 16,321 on the back of flat growth in occupancy at 72 per cent, while in resort hotels the metric zoomed 17 per cent on the back of 6 percentage point rise in occupancy at 59 per cent.The company also has a meaningful food and beverage (F&B) engine. F&B revenue rose 15 per cent, and the F&B-to-room revenue ratio improved to 71.2 per cent. This is amongst the highest amongst peers. Non-resident cover mix in city hotels rose to 54 per cent, showing that restaurants are attracting customers beyond hotel guests.What has changedThe biggest change since IPO is the balance sheet. During the time of IPO, the company had said it will use ₹2,300 crore from the IPO proceeds to repay or prepay borrowings. Consequently, debt fell from ₹4,141 crore in 2025 to ₹1,810 crore in 2026, per Bloomberg. This directly addresses one of the main IPO concerns that the earlier debt burden was too high for comfort.The second change is profit visibility. FY26 revenue (adjusted) grew about 20 per cent to ₹1,527 crore. Adjusted EBITDA grew 26 per cent, while margin improved to nearly 49 per cent. Importantly, reported finance cost fell 56 per cent. This is important. The business has improved, but the PAT jump is not purely operational.Net-net, debt and profitability concerns have reduced. Capital efficiency and valuation comfort still need scrutiny.What needs to changeFor the stock to move from ‘hold’ to a stronger positive call, three things need to become clearer.First, EBITDA margins must prove sustainable at 48-50 per cent levels. Q4 showed the risk. Occupancy fell from 78 per cent to 72 per cent due to war impact, though ADR rose 15 per cent and RevPAR still grew 6 per cent. If international travel or luxury demand weakens, pricing power will be tested and so will be margins.Second, while the absolute profit numbers improved significantly in FY26, the underlying capital efficiency remains characteristic of a highly asset-heavy luxury hospitality business, with a low asset turnover (0.17x), mid-single-digit RoE (6.2 per cent) and high-single-digit RoCE (8.6 per cent). Compare Leela to similar-sized and luxury hotels peer EIH, and you will see that the latter displays significantly-stronger capital efficiency metrics for FY26, boasting RoCE of 16.26 per cent, double-digit RoE of 12.15 per cent, and a higher asset turnover of 0.45x. This is important because Leela’s pipeline remains partly asset-heavy, with owned projects such as Srinagar, Bandhavgarh, Ayodhya, Agra, Ranthambore and Mumbai BKC.Third, new growth drivers must deliver. Coorg (ultra-luxury operating resort), Jaisalmer (luxury Desert Resort and Spa), Dubai, luxury residences (new business vertical) and ARQ (luxurious members-only club) can add value, but investors need proof of ramp-up, capex discipline and strong fee income. We are encouraged by The Leela Hyderabad (managed property) that delivered a strong first-year performance, achieving a healthy occupancy of 62 per cent while commanding an ADR at a 1.24x premium to its peer set.Undoubtedly, the overall business looks better than at IPO, but the valuation at nearly 21x one-year forward EV/EBITDA still leaves limited room for disappointment.Importantly, on July 1, 2026, promoter entities of Leela disclosed that they had created a pledge on June 24, 2026 over 18.67-crore Leela shares in favour of Catalyst Trusteeship, acting as onshore security agent for lenders to a $500-million facility. The pledged shares represent 55.91 per cent of Leela’s equity and 73.67 per cent of promoter holding. This is not a direct balance-sheet liability for Leela, as the stated use of funds is promoter-level distributions, repayment of promoter shareholder loans etc. Still, given the size of the encumbrance, it can remain a stock overhang, especially if promoter-level stress or a sharp fall in Leela’s share price raises invocation concerns.Published on July 4, 2026