Lodha Developers’ Macrotech IPO: First IPO of FY22; should you subscribe to this realty issue?

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Updated: Apr 06, 2021 12:15 PM

Macrotech Developers Ltd’s, erstwhile Lodha Developers, Rs 2,500-crore IPO will open for subscription on April 7, 2021.

Lodha Developers Macrotech IPO, Macrotech developers IPOThe company has a core business of residential real estate developments with a focus on affordable and mid-income housing along with the development of logistics and industrial parks.

Macrotech Developers Ltd’s, erstwhile Lodha Developers, Rs 2,500-crore IPO will open for subscription on April 7, 2021. The company has fixed the price band of Rs 483-486 per share. Realty major Macrotech Developers will reduce net debt by 24 per cent to Rs 12,700 crore post its initial public offer. The company has a core business of residential real estate developments with a focus on affordable and mid-income housing along with the development of logistics and industrial parks. According to analysts, the realty sector is taking a U-turn from the last 5-year slowdown.

Strong housing demand has been seen after the realty sector was hit by the COVID-19 pandemic. Lodha developers reported revenue of Rs 2,920 crore with EBITDA of 770 crores in 9MFY2021. The company’s net debt of Rs 16, 700 crore as of December 2020, is a very high number, and the company is focusing on deleveraging its balance sheet from the proceeds of the IPO, said Yash Gupta Equity Research Associate, Angel Broking Ltd. “We expect the sector to do well in coming years and top players to gain market share from these levels. We have a positive outlook for this IPO,” Gupta said.

Lodha Developers 3rd IPO attempt

This is the third time when the realty developer has come up with an initial public offer. In September 2009, the Lodha Developers had tried to raise Rs 2,800 crore and later in 2018. However, the global recession forced it to shelve the IPO in 2009, while it retreated in 2018 due to adverse conditions in the sector. The company has a strong presence in Mumbai Metro regions (MMR). However, the company’s debt is a major cause of concern. “The business in which the company operates is highly capital intensive and heavy indebtedness will be a hurdle for future financing,” Abhay Doshi, Founder, UnlistedArena.com, dealing in Pre-IPO & Unlisted Shares, told Financial Express Online.

He also said that even on the basis of P/BV and D/E metrics, the company is priced at expensive valuations as compared to its peers operating in the same regions. “In my opinion, there are better options available in this space with a sound balance sheet which may offer comfortable risk-reward to venture into real estate themes which seems to be bottoming out. Owing to big issue size, heavy debt and increase in covid cases, the IPO may lack fancy of investors,” Doshi said.

Lodha Developers group company Macrotech IPO will open in the midst of the second wave of COVID-19 concerns. For FY18 to FY20, Revenue CAGR has been -5.34%, net profit CAGR has been -36.5%. The issue is priced at 26.3x P/E and 5.0x P/B (FY20 EPS). As of December 31, 2020, the debt to equity ratio was 3.87x which was extremely high. This is a very high debt to equity ratio which leaves little to no room for the company to weather any unforeseen events, said Aditya Kondawar, Founder, COO, JST Investments. “Taking into account all of this, we feel that one should look at other listed players that are available with minimal debt,” he told Financial Express Online.

(The recommendations in this story are by the respective research and brokerage firm. Financial Express Online does not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)

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