By Harshita Tyagi,
The IPO of real-estate developer Shriram Properties, a part of Shriram Group, will open for subscription today (December 8), and it will conclude on December 10. The price band for the IPO has been fixed at Rs 113-118 per share. The issue comprises fresh issuance of equity shares worth up to Rs 250 crore, and an offer for sale (OFS) of Rs 350 crore. The firm has reduced its OFS size from Rs 550 crore earlier. The company has raised a little over Rs 268 crore from anchor investors ahead of its IPO.
Issue lot size and investor’s reserved portion
Investors can bid for a minimum of 125 equity shares and in multiples of 125 equity shares thereafter. Retail investors can invest a minimum of Rs 14,750 for one lot, and their maximum investment would be Rs 1,91,750 for 13 lots. Retail investors are allowed to invest up to Rs 2 lakh in an IPO. The share allotment will be finalised by December 15; unsuccessful investors will get refunds in their bank accounts on or after 16, while successful investors will get shares in their demat accounts by December 17.
Shriram Properties IPO Grey Market Premium
Ahead of IPO opening, Shriram Properties shares were trading at Rs 20 premium in the grey market, over issue price of Rs 118 (upper end), according to IPOWatch.
The company posted a loss of Rs 60 crore on revenues of Rs 118.2 crore in the six-month period ended September 2021. In the financial year ended March 2021, it reported a loss of Rs 68.2 crore against loss of Rs 86.4 crore in the previous year. Revenue from operations dropped from Rs 571.96 crore to Rs 431.5 crore during the same period.
The price bracket of Rs 113-118 per share values the company at Rs 1,752 crore at the top end of the bracket, which could be a big risk for investors as majority of the issue is from the OFS portion.
Issue aggressively priced compared to peers
INDmoney: Shriram Properties’ total revenues fell 21% on-year to Rs 501 crore in FY21, impacted by the ongoing pandemic. Due to COVID-19 pandemic, construction activity had been stalled during the year. The company has also posted losses in the last 2 years. Due to its negative earnings, it is not possible to value the company on a PE ratio basis. At the higher end of the price band, Shriram Properties IPO is priced at a Price to Book Value of ~2.29 times (Apr-Sep 21). This seems to be in-line with listed peer Prestige Estates (2.61 times), but lower than Oberoi Realty (3.10 times), DLF (2.63 times), Sobha (3.25 times), Godrej Properties (6.51 times). When compared on an EV/ EBITDA basis, Shriram Properties seems to be aggressively priced as compared to peers, due to lower earnings in the previous years. Notably, Prestige, Sobha and Oberai have higher return ratios than Shriram Properties. Given a drop in revenues, negative earnings, uncertain outlook due to the ongoing pandemic, and high valuations, we remain “Neutral” on the prospects of the issue.
Choice Broking: Assigning a “Subscribe” rating for the issue, Choice Broking in its IPO note said: “SPL is one of the leading residential real estate development companies in South India, primarily focusing on the mid-market and affordable housing categories. It is a part of the Shriram Group, which is a prominent business group with four decades of operating history in India and a well-recognized brand in the retail financial services sector and several other industries. Association with the Group benefits the company from the trust and confidence that homebuyers, lenders, financial investors, landowners, development partners, contractors and other stakeholders have on the Shriram brand.”
“SPL is well supported by marquee private equity investors like TPG, Tata Opportunities Fund, Walton Street Capital and Starwood, which cumulatively held 58.35% equity stake. Through this IPO, these investors are partially offloading their stake. The company has also attracted multiple financial investment (from investors like SUN Apollo India Real Estate Fund I LLC, Mitsubishi Corporation, Amplus Capital Advisors, ASK Real Estate Special Opportunities Fund, India Realty Excellence Fund II LLP managed by Motilal Oswal and Kotak Affordable India Fund) in its projects,” it added.
Money raised to be used to pay off debt
The money raised through the IPO will be used to pay off the debt. From the net fresh issue proceeds, Rs 200 crore will be utilized for the repayment/prepayment of certain borrowings availed by the company. Axis Capital Ltd., ICICI Securities Ltd. and Nomura Financial Advisory and Securities (India) Pvt. Ltd are the lead book running managers to the Shriram Properties IPO. KFinTech Ltd is the registrar of the issue. Post-listing, Shriram Properties will get itself added to the list of other listed real estate developers like Sobha, Prestige Estate Projects, Brigade Enterprises, Godrej Properties, Oberoi Realty and Sunteck Realty.