First day of Shriram Properties IPO : Should you invest?

On Wednesday, December 8, Shriram Properties’ Rs 600 crore initial public offering (IPO) began accepting subscriptions. The offer for sale includes the issuance of new equity shares worth Rs 250 crore as well as the sale of existing stock worth Rs 350 crore (OFS).

The company’s stock is being offered for sale for between Rs 113 and Rs 118 per share. Bids for as few as 125 shares or as many as they desire are accepted.

The company has been losing money for the previous two years, and revenue growth has been negative. The issue garnered mixed evaluations from brokerages due to its high valuations.

The brokerage ICICI Securities is concerned about the company’s geographic concentration on the southern metros. “The company has pledged equity interests of certain companies in favour of their respective lenders,” the statement said, “and Covid-19 illness could have an impact on business and operations.”

Shriram Properties received roughly Rs 269 crore from anchor investors ahead of its IPO, according to a BSE circular, by assigning 2,27,66,949 equity shares to 34 anchor investors at Rs 118 each.

BNP Paribas Arbitrage, Societe Generale, SBI Life Insurance Company, HDFC Life Insurance Company, Sundaram Mutual Fund, Aditya Birla Sun Life Mutual Fund, and HDFC Mutual Fund are among the anchor investors.

Based on FY21 EBITDA of Rs 51.24 crore on a post-issue basis, Marwadi Shares and Finance indicated in its pre-IPO note that the business will list at an EV/EBITDA of Rs 51.84 with a market capitalization of Rs 2,001.3 crore. Meanwhile, the brokerage has assigned the company an avoid rating because its peers, Sobha Limited and Oberoi Realty, are trading at lower valuations.

Shriram Properties primarily caters to the mid-market and low-cost home markets. There are also a few high-end house developments in the area. Commercial office space has also been considered by the company.

As of September 30, 2021, the company had finished over 29 projects and had a total portfolio of over 25 projects with 46.72 million square feet of salable area.

Factors including historically low home loan interest rates, stable residential prices, and stamp duty reductions in select regions, according to Choice Broking’s pre-IPO research, are particularly favourable for the affordable residential real estate market.

“We anticipate a rise in home buyer interest as pandemic limitations are lifted.” It seeks a P/B multiple of 1.8x, which is much less than the peer average. The issue was also given a subscriber rating.

The issue includes a Rs 3 crore equity share reservation for the company’s qualifying workers, who will receive the shares at a discount of Rs 11 per share over the issue price.

Institutional investors will receive 75% of the net offering, while non-institutional bidders will receive 15%. A retail quota of 10% of the net offer has been established. In the fiscal year 2020-21, the company reported a net loss of Rs 68.17 crore on revenue of Rs 501.3 crore. In FY19-20, the company lost Rs 86.39 crore on revenue of Rs 631.84 crore, resulting in a net loss of Rs 86.39 crore.

For the quarter ended September 30, 2021, the company reported a net loss of more than Rs 60 crore on revenue of Rs 155.15 crore.

Canara Bank Securities estimates that the company has 197.47 acres of land reserves, with a development potential of about 21.45 million square feet of projected Saleable Area. “Its net debt to equity ratio as of H1FY22 is 0.80x, and long-term investors should be wary,” it warned, issuing a subscribe rating just for listing gains.

Meanwhile, the financials are weak, according to Aayush Agrawal, Senior Analyst at Swastika Investmart, because revenues are dropping and the company has been losing money since FY20.

He explained that, despite having a good brand, the company lost money during the Covid time, when real estate and housing were flourishing. Only ambitious investors, according to Agrawal, should subscribe to the issue.

The new issue’s net proceeds will be used to repay and/or prepay debt, as well as for general business purposes.

“The issue has been priced at 2.27 times price to book value, whereas peers like Sobha and Prestige are trading at around 3 times,” said Yash Gupta, Equity Research Analyst at Angel One, who is bullish on the IPO.

Shriram Properties, a residential real estate developer in Southern India, was started in 2000 and has a major presence in Bangalore and Chennai. The organisation also has offices in Coimbatore, Visakhapatnam, and Kolkata.

The company had planned an IPO for Rs 800 crore with a Rs 550 crore offer for sale at first. Due to recent market conditions, the company decreased the OFS portion to Rs 350 and the IPO amount to Rs 600 crore.

Religare Broking intends to continue to strengthen its reputation and track record in the mid-market and affordable housing categories, according to the company’s report.

“We are bullish about the company’s long-term growth potential,” it continued, citing current positive industry growth trends. “Financial improvement, on the other hand, would remain a primary monitorable for the organisation.”

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