Morgan Stanley starts coverage with a target of 549, ‘overweight’ on green shares; 5% stock

In the luxury hospitality segment, “high-for-long” upscale, Global Brokerage firm Morgan Stanley launched coverage on Sklos Bangalore, a company owning and operating luxury hotel under ‘The Green’ brand, with a ‘overweight’ rating and target price. 549.

The target indicates the possibility of a 35% of the stock on Monday.

Following this, the company’s stock has increased by 5%, which hit the BSE to an intraday high of Rs 427.20.

The positive outlook of Morgan Stanley is made in the luxury hospitality segment through the strong demand for “high-time-long-for-time-time” epithelial, premium travel experiences and attractive valuations of the company.

Brokerage also cited Bangalore’s low net debt status and stable execution as the main drivers for potential re -rating, while flagging the risk of concentration as a major factor to monitor.

According to the brokerage note, Sklos Bangalore is one of the few pure-play luxury hotel operators in India, with a portfolio of iconic heritage-style hotel affected by modern architecture.

The company owns five operational properties, which holds%of its income, and contains a room (RevPR) and EBITDA margins available per international awards and industry leading income.

Morgan Stanley published that this operational matrix reflects the brand’s premium status in India’s luxury hospitality segment.

The report also noted that the demand for luxury hotels in India is strong, as the addition of additional supply is moderate due to high capital cost requirements.

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This demands continuous uptrend in the non-matching ravPR. Brokerage expects that annual EBitda growth grows by 12% by the financial year 27, which is operated by rising room rate and healthy business levels. The net income is expected to increase, which is supported by a limited increase in interest costs.

Morgan Stanley also said that the company is almost net-de-free, with enough free cash flow to fund its upcoming capital cost cycle. Sklos Bangalore plans to open five new hotels, including 475 rooms, including one under a joint venture, which is expected to operate by FY 28.

Adjustable to asset evaluation and promoter recapitalization, Morgan Stanley reported around 7.3%, around 10%, on the company’s capital employing (ROCE).

In terms of valuation, brokerage sees space for more sidewalks. The stock currently trades on 18.5x EV/EBITDA at the estimate of FY 27, compared to the average 29X for owners of luxury hotel peers and chalets and juniper, which trades around 20X, which is traded around 20X.

In its base case, Morgan Stanley applies 25x multiple for the FY27 EBITDA FY27 Shlos, with a bull case of 30x, indicating a potential re -rating, aligned with IHCL evaluation.

However, the broker flagged that more than 70% of the company’s revenue was concentrated in its top three properties, which showed a significant concentration risk. In addition, luxury demand can put pressure on the margin with a severe cyclic recession, the company’s high fixed costs and the capital-intensive nature.

Around afternoon, the shares of Sklos Bangalore are trading 1.5% more on BSE for Rs 423.40.

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