Shriram Properties IPO opens today. Should you subscribe?

#IPO, #IPO - Issues Open, #Shriram Properties, Shriram Properties Limited, Shriram Transport Finance, Shriram City Union Finance, Sobha Limited, Oberoi Realty Limited

(Representational image; Photo by Engin Akyurt from Pexels)

Shriram Properties Limited will float its Rs 600-crore public issue on December 8. It will close for subscription on December 10.

The company is among the top five residential real-estate companies in South India going by the number of units launched between 2012 and the third quarter of 2021 across Tier 1 cities of the region, including Bengaluru, Chennai and Hyderabad.

Part of the Shriram Group, which has listed companies such as Shriram Transport Finance (STFC) and Shriram City Union Finance (SCUF), Shriram Properties focuses on the mid-market and affordable housing segments.

Issue Details

Shares in this Rs 600-crore public offer will be launched at Rs 113-118 per share of a face value Rs 10 each.

The IPO comprises fresh issues of Rs 250 crore, and an offer-for-sale of Rs 350 crore by its various investors.

Up to 75 percent of the issue is reserved for qualified institutional buyers, 15 percent for non-institutional investors and 10 percent for retail investors.

The current shareholding of promoters stands at 31.98 percent, which will come down to 27.98 percent after the issue.

The lot size will be 125 shares, and the minimum investment for retail investors will be Rs 14,750 for one lot and their maximum investment would be Rs 1,91,750 for 13 lots.

The share allotment will get finalised by December 15 and unsuccessful bidders will get their refunds credited to their bank accounts by December 16. The successful bidders will get their shares in their demat accounts by December 17.

Trading in shares of the company will start on the BSE and NSE from December 20.

Brokerage Views

Brokerages have mixed recommendations for the IPO, given that the company has incurred losses in the past two consecutive years and has significant amount of debt on its books. Its valuations are also high compared to peers. But the positives for the company are its strong brand presence, especially in South India, and long-term growth prospects, given the current positive trends in the industry.

“This company is part of the reputed Shriram Group, but that cannot be the only point to apply for this IPO,” said Ravi Singhal, Vice-Chairman, GCL Securities.

The company has been posting losses for the last two years and its revenue has shrunk significantly from its 2019 levels, he said. The losses may extend further this year because of the Omicron crisis.

“Clearly, investors cannot apply for this IPO for listing gains, though one may apply for the long term, based on their risk appetite,” Singhal said.

“Infrastructure, realty, construction and mining are major sectors which are performing well and are going to play an important role in the next market rally,” suggested Ravi Singh, Vice-President and Head of Research at ShareIndia.

The demand for residential real estate is gathering momentum across the country, and South India, where the company has a major presence, has been a major contributor to this revival.

“However, in the current juncture, when the whole market is under the uncertainty of new COVID variant, Omicron, we advise investors to book their positions on the day of listing and wait for overall sentiments to turn around,” suggested Singh.

However, brokerage firm Marwadi Financial Services recommends investors to avoid this IPO because it finds the company’s valuations expensive compared to its peers.

“Considering FY21 EBITDA of Rs 51.2 crore on post-issue basis, the company is going to list at an EV/EBITDA of 51.84 with a market cap of Rs 2,001 crore, while its peers like Sobha Limited and Oberoi Realty Limited are trading at an EV/EBITDA of 15.60 and 33.00,” the brokerage said.

Choice Broking highlighted that the company is at risk from Omicron, unfavourable movement in the interest rates, delays in project execution, sustained higher cost of construction and competition.

“However, fundamental factors like historically low home loan interest rates, stagnant residential prices, reduction of stamp duty in certain markets, are very favourable for the affordable residential real estate market which is the main area of operation for the company,” the brokerage added.

The company’s business was severely impacted during the second wave of the pandemic. Therefore, it is likely to perform relatively better in the coming quarters.

“At a higher price band of Rs 118, it is demanding a P/B multiple of 1.8x, which is at significant discount to the peer average of 4.6x. Thus considering the above observations, we assign a ‘subscribe’ rating for the issue,” Choice Broking said.

Company Brief

Incorporated in the year 2000, the company has 29 completed projects, representing 16.76 million square feet of saleable area as of September 30, 2021. Bengaluru and Chennai account for 90.6 percent of its saleable area.

As of September 2021, it has a total portfolio of 35 projects – ongoing, under development and forthcoming – aggregating to 46.72 msf of estimated saleable area. In addition, it has land reserves of approximately 197.47 acres, with a development potential of approximately 21.45 msf of estimated saleable area.

The company is transitioning from a real-estate development model to a combination of real-estate development and real-estate services model, which favours an asset-light strategy.

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