Brookfield is serving up luxury, the Leela way

Brookfield acquired Leela Hotels in 2019. What has been the experience so far? 

Ankur: Our view of the business has never been stronger. Hotel Leela is a four-decade old brand, but today it’s larger than ever before. We’ve already gone from eight to 13 hotels and are in the process of building seven more. We have high NPS (net promoter score) and high EBITDA margins. It is very rare in consumer businesses to achieve both. But it’s not a surprise to us. At the same time, our focus on the underlying operating businesses allows us to create efficiency in the way we work- whether it’s introducing green power to reduce utility costs, or  introducing dynamic manning programs. This allows us to offer more with lesser expenses. That is our secret sauce. 

What investments are you making? What are the capex plans? 

Ankur: We’ve been able to put capital to work in 2019 and subsequently every year since then. And post IPO, the business will have almost no debt, which means ample liquidity.

The Brookfield sponsorship remains, and we will remain the promoter entity of the Leela business for several years to come. Our properties are very well maintained and hence our EBITDA margins and maintenance capex numbers are high. We are putting money in our existing hotels. There is capex happening at the hotel in Chanakyapuri area in Delhi and that will enhance the EBITDA potential of the entire business. We are also creating the Leela Club program. It is a way for us to create unique experiences for the top businesses and leaders in the country. We are also building more hotels including some brownfield and greenfield projects and extending the brand in new territories. Our capital program is robust. 

What will your growth strategy be going forward? Will you look at more acquisitions – both in greenfield and brownfield space? 

Ankur: As one of the largest investors in real assets in the country, we are always looking at opportunities. And we think of the opportunity in a risk-return format, rather than a greenfield or brownfield format. We have also demonstrated that we can take an existing hotel, like in Jaipur, and convert that into a Leela Palace, enhance operations, and make it very good. So it’s going to be a combination of all of the above and more. 

Are you looking at expanding beyond the metros? 

Anurag:  If you look at our current portfolio and the signed-up contracted portfolio, it’s a pan-India play. We are present in seven of the top eight business cities in the country. There are destinations that are evolving based on our research, market feedback and consumer preferences in the ultra-luxury segment. We see the preferences shifting towards discovering destinations, increasing length of stay, more experiential holidays. 

If you look at the pipeline, we will be amongst the first and the pioneers to have a luxury property in Ayodhya. We are converting an existing asset and building a Leela Palace in Srinagar. So we are creating destinations, and are also present in destinations which are already popular. The key moat of our business is that we are placed in such a segment which is expanding exponentially. There is an ever-growing demand for luxury goods, products, and services. And our hospitality products that we come up with in terms of our palaces and resorts are catering to this particular demand. 

Doesn’t luxury-only play put you at a higher risk compared to peers since you are largely dependent on leisure segment? 

Ankur: Coming out of the pandemic, the first sector to come back was high-end leisure tourism. Most businesses have some cyclicality to it. In the current environment there is more propensity to spend in experiences. I would say that sometimes a bigger risk to a business is the commodity nature of the offering where you have 20 things to choose from and  are all similar. 

Luxury as offered by Hotel Leela is very unique. And  that’s our motto. Yes, there is always a risk that some events happen. And geopolitical tension is heightened right now. But the fundamental belief in India and the growth story that we have and Leela’s positioning of that growth story. And the message that India’s luxury ecosystem needs to carry world over is what we believe in.

How much stake is Brookfield diluting via the IPO? 

Ankur: The dilution or the public participation will be about 24 per cent. Brookfield continues to be the promoter entity and the sponsor of the Leela business. We had always strategised that post IPO the net debt should be close to zero and we will achieve that by the primary issuance of about ₹2,500 crore. The OFS portion of about ₹1,000 crore is to just create ample public float