Brigade Hotel IPO review (May apply)

•    The company is engaged in owning and developing hotels, with prime focus on Southern region.
•    It has carried forward loss of Rs. 196.05 cr. as of March 31, 2025.
•    The company turned the corner from FY24 and posted profitable workings.
•    Based on recent financials, the issue prima facie appears aggressively priced.
•    Considering its ongoing expansions and bright prospects, well-informed investors may park funds for long term.

ABOUT COMPANY:
Brigade Hotel Ventures Ltd. (BHVL) is an owner and developer of hotels in key cities in India primarily across South India. It is the second largest owner of chain-affiliated hotels and hotel rooms in South India (comprising the states of Kerala, Andhra Pradesh, Tamil Nadu, Karnataka, Telangana, and the Union territories Lakshadweep, Andaman and Nicobar Islands and Pondicherry) among major private hotel asset owners (i.e., investors owning at least 500 rooms pan India) as of March 31, 2025 (Source: Horwath HTL Report). Its Promoter, Brigade Enterprises Limited (“BEL”) entered into the hospitality business in 2004 with the development of its first hotel Grand Mercure Bangalore, which commenced operations in 2009. 

As of the date of this Red Herring Prospectus, it had a portfolio of nine operating hotels across Bengaluru (Karnataka), Chennai (Tamil Nadu), Kochi (Kerala), Mysuru (Karnataka) and the GIFT City (Gujarat) with 1,604 keys. Its hotels are operated by global marquee hospitality companies such as Marriott, Accor and InterContinental Hotels Group and are in the upper upscale, upscale, upper-midscale, and midscale segments (Source: Horwath HTL Report). BHVL’s hotels provide a comprehensive customer experience including fine dining and specialty restaurants, venues for meetings, incentives, conferences, and exhibitions (“MICE”), lounges, swimming pools, outdoor spaces, spas, and gymnasiums. Its hotels have been recognized for their quality and have received several awards. 

BHVL follows a business model where it either own or lease hotel assets and engage global hospitality companies for operation of the hotels. Collaboration with global hospitality companies allows it access to their operating processes and expertise, global best practices, marketing strategies and operational know-how. The company closely monitors hotel performance and work with hotel operators to set performance targets and manage expenses. Its initiatives towards optimizing expenses include space utilization, reduction in energy consumption, shared services, facility upgrades, staffing optimization, and leveraging technology which in its experience improves cost-effectiveness.

BHVL is a subsidiary of BEL which is a real estate developer in India. Its association with BEL gives it a competitive edge and allows to leverage its brand reputation, relationships with corporate clients and expertise in developing real estate properties. It benefits from BEL’s understanding of market trends and strategic location opportunities, enabling it to develop hotels in prominent areas with high growth potential. The company also takes advantage of BEL’s involvement in mixed-use developments to develop hotels as part of real estate projects to offer integrated experiences to customers. Further, BEL’s knowledge and resources enable it to develop quality hotels in a cost-efficient manner and gives it the advantage of economies of scale when procuring goods and services for the hotels.

BHVL’s hotels are typically located in positive demand locations, driven by factors such as population density, premium neighborhoods, commercial centres and IT hubs (Source: Horwath HTL Report). It focuses on identifying specific locations for hotels within cities that are conveniently located near airports, business districts, commercial centres and retail hubs with a high footfall. It aligns branding and positioning of hotels with the characteristics of each location, catering to preferences and expectations of its target customers. Its capability to collaborate with global marquee hospitality companies, brand-agnostic approach, and appeal to global brands demonstrate its adaptability and helps it enhance market presence in India.

It has a proven track record of developing marquee hotels across various geographies and different hospitality segments. BHVL’s number of keys has grown over the years, from 1,474 keys as of March 31, 2023 to 1,604 keys as on the date of this Red Herring Prospectus. Further, its average occupancy (representing the total number of room nights sold divided by the total number of room nights available at a hotel or group of hotels) in Fiscal 2025 was 76.76% which was higher than the industry annual occupancy in Fiscal 2025 of 64.5% (Source: Horwath HTL Report). It intends to develop five additional hotels. In particular, it intends to develop a luxury beach resort at ECR in Chennai (Tamil Nadu) and two upper midscale hotels in Bengaluru (Karnataka). With respect to the luxury beach resort, BVHL has entered into a management agreement with Hyatt to develop the resort under the ‘Grand Hyatt’ brand. Similarly, with respect to the two upper midscale hotels in Bengaluru (Karnataka), it has entered into definitive agreements with Marriott to develop these hotels under the ‘Fairfield by Marriott’ brand. 

The company also intends to develop a luxury hotel under the InterContinental brand in Hyderabad (Telangana), for which its Promoter, BEL, has entered into a definitive agreement with InterContinental Hotels Group. In addition, it plans to develop a wellness resort on 14.70 acres in Vaikom, Kerala of which it owns 7.08 acres and have entered into a memorandum of agreement dated October 21, 2024 with Brigade Hospitality Services Limited to purchase the balance 7.62 acres. It has also entered into a definitive agreement with Marriott to develop this resort under ‘The Ritz-Carlton’ brand. The company intends to complete the construction of the luxury beach resort in Chennai (Tamil Nadu) and two upper midscale hotels in Bengaluru (Karnataka) by Fiscal 2028 and the remaining two hotels (including the wellness resort) by Fiscal 2029. As of March 31, 2025, it had 1191 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of fresh equity shares issue worth Rs. 759.60 cr. (approx. 84400000 shares at the upper cap). The company has announced a price band of Rs. 85.00 – Rs. 90.00 per equity shares of Rs. 10 each. The issue opens for subscription on July 24, 2025, and will close on July 28, 2025. The minimum application to be made is for 166 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 22.22% of the post-IPO paid-up equity capital. From the net proceeds of the fresh equity issue, the company will utilize Rs. 107.52 cr. for buying undivided share of land from BEL, Rs. 468.14 cr. for repayment/pre-payment of certain borrowings., and the rest for general corporate purposes and inorganic growth through unidentified acquisitions. 

The company has reserved equity shares worth Rs. 7.60 cr. (approx. 844444 shares at the upper cap) for its eligible employees and offering them a discount of Rs. 3.00 per share. It has also reserved equity shares worth Rs. 30.38 cr. (approx. 3375555 shares) for the shareholders of BEL (Brigade Enterprises Ltd.). From the rest, it has allocated not more than 75% for QIBs, not less than 15% for HNIs, and not less than 10% for Retail investors.

The joint Book Running Lead Managers (BRLMs) to this issue are JM Financial Ltd., ICICI Securities Ltd., while KFin Technologies Ltd. is the registrar to the issue. JM Financial Services Ltd. is a syndicate member.

Having issued initial equity shares at par, the company issued further equity shares at a fixed price of Rs. 90.00 per share in July 2025. The average cost of acquisition of shares by the promoters is Rs. 10.00 per share. The company did a pre-IPO placement of 14000000 equity shares at Rs. 90 to 360 ONE fund under various schemes.

Post-IPO, its current paid-up equity capital of Rs. 295.43 cr. will stand enhanced to Rs. 379.83 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 3418.47 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit/ - (loss), of Rs. 356.41 cr. / Rs. – (3.09) cr. (FY23), Rs. 404.85 cr. / Rs. 33.14 cr. (FY24), Rs. 470.68 cr. / Rs. 23.66 cr. (FY25). 

For the last three fiscals, the company has posted an average EPS of Rs. 0.63 and an average RoNW of 31.20%. The issue is priced at a P/BV of 32.26 based on its NAV of Rs. 2.79 as of March 31, 2025, and at a P/BV of 3.55 based on its post-IPO NAV of Rs. 25.38 per share (at the upper cap). It had a carried forward losses of Rs. 196.05 cr. as of March 31, 2025.

If we attribute FY25 annualized earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 145.61. Based on FY24 earnings, the P/E stands at 109.76. Thus, the issue is aggressively priced discounting all near term positives. 

The company has posted PAT margins of – (0.87) % (FY23), 7.69% (FY24), 5.03% (FY25), its RoACE margins stood at 9.50%, 14.84%, 16.27% respectively for the referred periods.

According to the management, losses for FY23 is attributed to one-time adjustments for accounting provisions and lower net for FY25 is due to adjustment of deferred tax as per new accounting standards. Otherwise, the company has done profitable business for all the three fiscals. It will have reduced finance cost following payment of Rs. 468+ cr. of debts and added revenues from recently launched new hotels. With its cost-efficient model of hospitality functions, the management is confident of maintaining the trends going forward.

DIVIDEND POLICY:
The company has not paid any dividends for the reported periods of the offer document. It has already adopted a dividend distribution policy in October 2024, based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown The Indian Hotels, EIH Ltd., Chalet Hotels, Juniper Hotels, Lemon Tree Hotels, Samhi Hotels, Apeejay Surendra Park Hotels, Ventive Hospitality, ITC Hotels, and Schloss Bangalore as their listed peers. They are trading at a P/E of 62.09, 143.0, 99.9, 62.7, 52.5, 39.9, 154.0, 81.5, and 316.0 (as of July 22, 2025). However, they are not truly compared on an apple-to-apple basis. 

MERCHANT BANKER’S TRACK RECORD:
The two BRLMs associated with the offer have handled 79 pubic issues in the past three fiscals, out of which 18 issues closed below the offer price on the listing date.