Shriram Properties Ltd, a real estate developer, launched its three-day initial public offering (IPO) yesterday— Dec 8. In this article, learn more about the company and its IPO.
Company Profile – Shriram Properties Ltd
Shriram Properties Ltd (SPL) is one of the leading residential real estate development companies in South India. It is part of the Shriram Group, a reputed Chennai-based conglomerate with four decades of operating history. SPL primarily focuses on the mid-market and affordable housing segments. The company is also present in the mid-market premium, luxury housing, commercial, and office space categories. It has operations in Bengaluru, Chennai, Coimbatore, and Visakhapatnam.
The realty company completed 29 projects as of September 30, 2021 (Q2 FY22), representing 16.76 million square feet (msf) of saleable area. Out of the total, 24 projects are in Bengaluru and Chennai. Currently, SPL has a total portfolio of 35 ongoing, under development, and forthcoming projects aggregating to 46.72 million sq. ft. of estimated saleable area. Moreover, it has land reserves of approx. 197.47 acres, with a development potential of 21.45 msf of estimated saleable area. They have demonstrated capabilities in project identification and execution.
SPL is now transitioning to a combination of real estate development and real estate services-based business model, with a shift towards an asset-light business strategy. The company will continue to focus on mid-market and affordable housing categories in major cities in South India.
About the IPO
Shriram Properties’ public issue opens on December 8 and closes on December 10. The company has fixed Rs 113-118 per share as the price band for the IPO.
The fresh issue of shares (of the face value of Rs 10 each) aggregates to Rs 250 crore. The IPO also includes an offer for sale (OFS) by promoters and early investors, aggregating to Rs 350 crore. Individual investors can bid for a minimum of 125 equity shares (1 lot) and in multiples of 125 shares thereafter. You will need a minimum of Rs 14,750 (at the cut-off price) to apply for this IPO. The maximum number of shares that can be applied by a retail investor is 1,625 equity shares (13 lots).
SPL will utilise the net proceeds from the IPO for the following purposes:
- Repayment and/or pre-payment of certain borrowings availed by the company and its subsidiaries Shriprop Structures, Global Entropolis, and Bengal Shriram – Rs 200 crore.
- General corporate purposes.
The total promoter holding in the company will decline from 31.98% to 27.98% post the IPO.
Shriram Properties has posted net losses over the past two financial years and in the six months ended September (H1 FY22). Its total income declined sharply from Rs 723.79 crore in FY19 to Rs 501.3 crore in FY21. The fall in revenue can be attributed to a decrease in the number of sale deed registrations and factors related to Covid-19 lockdowns. The company witnessed an increase in customer cancellations. However, EBITDA increased from Rs 79.93 crore in FY19 to Rs 121.05 crore in FY21. Operating margins have also improved during the same period.
SPL’s sales volumes from residential projects fell 7.7% year-on-year (YoY) to 3 million sq. ft in FY21. Its gross collections from the segment declined by 20.56% YoY to Rs 939.36 crore during the same period. There were no sales volumes and gross collections from commercial projects for the financial year ended March 2021.
The company’s total outstanding borrowings stood at Rs 695.1 crore as of Q2 FY22.
- SPL’s business and profitability are highly dependent on the performance of the real estate market in South India. Any fluctuations in market conditions could affect the company’s ability to sell projects at expected prices.
- Shriram Properties has a significant amount of debt. This factor could affect its ability to obtain future financing or pursue growth strategies.
- Some of the company’s ongoing and forthcoming projects may be delayed due to factors beyond its control. Such delays could adversely affect its reputation and financial condition.
- The increase in prices, or shortages of, or disruption in the supply of labour and key building materials could severely impact estimated construction costs and timelines.
- There are outstanding legal proceedings involving SPL, its subsidiaries, directors, and promoters.
- The company’s business is capital intensive and is highly dependent on the availability of real estate financing in India. Difficult conditions in the global and Indian capital markets may cause SPL to experience limited availability of funds. Such a situation will adversely impact its overall operations.
IPO Details in a Nutshell
The book-running lead managers to the public issue are Axis Capital, ICICI Securities, and Nomura Financial Advisory & Securities (India). Shriram Properties Ltd had filed the Red Herring Prospectus (RHP) for its IPO on December 1. You can read it here. Out of the total offer, 75% is reserved for Qualified Institutional Buyers (QIBs), 15% for Non-Institutional Investors (NIIs), and 10% for retail investors.
Ahead of the IPO, SPL raised Rs 268.65 crore from anchor investors. The marquee investors include Societe Generale, Pioneer Investment Fund, Nomura, Blue Mount Capital, Nippon Life, HDFC Trustee, etc.
The real estate sector is one of the largest contributors to India’s economy. The demand for residential properties has surged as a result of rapid urbanisation and rising household incomes. As we know, real estate developers were forced to halt construction activities amidst the Covid-19 pandemic. They saw a considerable decline in sales volumes last year. Fortunately, with the removal of lockdowns, things are looking positive for this sector. Various realty firms are now witnessing a recovery in demand and have also posted good results. To learn more about the real estate sector in India, click here. One could invest in SPL based on its strong brand image and long-term growth prospects.
India’s real estate development industry is highly competitive and faces massive hurdles. SPL will be directly competing with large developers such as Prestige Estates, Brigade Enterprises, Godrej Properties, Oberoi Realty, Sunteck Realty, and Sobha once it gets listed.
The company has not received much investor interest in the grey market. SPL’s IPO shares are trading at a premium of just Rs 10-15 in the unofficial market. Many analysts have red-flagged the expensive valuation of SPL when compared to its peers. Before applying to this IPO, wait to see if the portion reserved for institutional investors gets oversubscribed. As always, consider the risks associated with the company and come to your own conclusion.
What are your opinions on this IPO? Will you be applying for it? Let us know in the comments section of the marketfeed app.