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Taking the impact of US-Iran war in stride

Leela Hotels Palaces and Resorts (THELEELA IN) reported a 14% growth in topline (versus estimates of 7%), driven by a 15% growth in ARR. Occupancy nosedived 560bps YoY as US-Iran war curtailed inbound travelers into India from the Middle East as well as the West. While war continued in April, THELEELA has been able to curtail the impact on occupancy by attracting more domestic guests.

Newly-owned hotels (725 keys across six hotels) are in early stages of construction/design stage. THELEELA also acquired the recently opened 71-key Timbertales Luxury Resort at Coorg, which will drive FY27 revenue along with RevPAR growth in operating hotels and growth in management fee income. Maintain Buy with a lower TP of INR 593 based on 22x FY28E EV/EBITDA. We roll forward valuations to FY28E and introduce FY29E financials.

US-Iran war denting occupancy: Q4FY26 occupancy declined by ~600bps, largely due to booking cancellations in March following geopolitical tensions in the Middle East, which disrupted inbound travel from key markets such as the US and the UK. International mix dropped from ~50% to ~40% in Q4. The impact was primarily visible in city hotels with higher dependence on foreign travelers, while resort properties saw ~600bps increase in occupancy. March MICE cancellations were managed through issuance of credit notes (valid for 6-9 months), with the management expecting a high proportion of this deferred business to return in subsequent quarters.

Demand recovery underway: Management highlighted the disruption was temporary, with demand trends already normalizing in Q1FY27. April occupancy has returned to prior-year levels by targeting domestic bookings. Forward bookings for May and June are improving, with the management guiding for double-digit revenue and EBITDA growth for Q1FY27. THELEELA also benefited from incremental demand as three destination weddings shifted from the Middle East to THELEELA properties in March, with enquiry momentum continuing into April and May. While recovery is underway, we expect growth to be impacted for the hotel industry as a whole due to spillover impact of the war.                     

Maintain Buy with a lower TP of INR 593: THELEELA is a play on increasing number of high-net-worth individuals (HNI) seeking luxury experiential travel. HNI count in India is growing in double digits per annum, but huge entry barrier is constraining the supply of ultra luxury hotels, which is poised to benefit incumbent luxury hoteliers. We raise FY27E EBITDA by 3% due to addition of the Coorg resort and reduce FY28E EBITDA by 4% due to deferment of opening of a few hotels. Hence, we lower our TP to INR 593 (INR 620 earlier) based on 22x FY28E EV/EBITDA as we roll forward our valuation to FY28E financials, while maintaining Buy.

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