Macrotech Developers- IPO Review

Detailed Analysis of Marcrotech Developers- IPO Review

Macrotech Developers also popularly known as Lodha Developers shall be the first IPO for the Financial Year 2021-22. So, Whether Shareholders should Invest in IPO or Not? Here is the detailed review of Macrotech IPO.

1) Introduction:

• Macrotech Developers earlier (Lodha Developers) are one of the leading real estate developers in India.
• Macrotech is engaged in residential real estate developments with a focus on affordable and mid-income housing.
• The company recently forayed into the development of logistics and industrial parks.
• Macrotech also develops commercial real estate.

Detailed Review of Macrotech Developers IPO Review

2) IPO DETAILS:

1. Macrotech Developers IPO window opened for subscription from 7^th of April 2021 to 9^th April 2021.
2. The size of the Initial Public Offering of Macrotech Developers is Rs. 2500 Cr. which is entirely a fresh issue.
3. The price band of the IPO is Rs. 483- Rs. 486. The Face value is Rs. 10 per equity share.
4. Macrotech Developers will be listed on both BSE as well as NSE.
5. Post-IPO, holding of Promoter’s will come down to 88.5% in the shareholding pattern.
6. Lot Size of the IPO includes 30 shares in a single lot and multiples thereof up to 13 lots.
7. Of the Total Issue, 50% is reserved for Qualified Institutional Buyers (QIB), 15% for Non-Institutional Bidders (NIB), and 35% for Retail Investors. For the employee, equity shares up to Rs. 30 Cr. are reserved.
8. The Objective of issue of IPO are:

i) Reduction of the aggregate outstanding borrowing of the company on a consolidated basis worth Rs. 1500 Cr.

ii) Acquisition of land or land development rights of around Rs. 375 Cr.

iii) General Corporate Purposes: Rest proceeds.

3) Business Overview:

• Macrotech Developers was incorporated in the year 1995.
• Macrotech is having the following brands:

i) Lodha, CASA by Lodha, and Crown- Lodha Quality Homes: for affordable and mid-income housing projects.

iii) Lodha Luxury: for Premium and Luxury Housing Projects.

iv) I think, Lodha Excelus and Lodha Supreme: for Office Spaces.

• As of December 31, 2020, Company is having 91 completed projects with a Developable area of 77.72 million square feet (msf), of which 71.93 msf is located in the MMR.
• As of December 31, 2020, Macrotech has 36 ongoing projects and 18 planned projects in India with a developable area of 28.78 msf and 48.08 msf respectively.
• Business of Macrotech Developers can be categorized into 3 parts:

i) Residential Portfolio: Affordable and mid-income housing projects and Premium & Luxury housing projects.

ii) Logistics and Industrial Park Portfolio

iii) Commercial Portfolio: Office Projects and Retail Projects

• The company has invested in 2 real estate projects in London through Lodha Developers UK Limited and its subsidiaries in two projects namely Lincoln Square and Grosvenor Square.

4) Business Verticals:

i) Residential Portfolio:

• Under the Residential Portfolio segment and Macrotech is active in affordable and mid-income housing projects and Premium & Luxury Projects.
• As of December 31, 2020, our residential portfolio constituted 91.62% of the Developable Area of our ongoing projects.
• Premium and luxury projects are those projects that are located in the island city of Mumbai.
• Macrotech has completed residential projects with a Saleable Area of 71.27 million square feet, as of December 31, 2020.

ii) Logistics and Industrial Parks:

• The company has planned to develop a logistics and industrial park of over 800 acres near Palava.
• Out of this area, approximately 290 acres is under development as of December 31, 2020, as an ongoing project, including an 89-acre logistics and industrial park that is being developed in partnership with ESR, and approximately 540 acres is categorized as a planned project.

iii) Commercial Portfolio:

• The company’s office space projects are categorized under three brands: “iThink”, “Lodha Excelus”, and “Lodha Supremus”.
• Macrotech has completed commercial projects with a Leasable Area of 5.95 million square feet, as of December 31, 2020.
• “iThink” brand are typically positioned towards the IT and the financial services industries, Lodha Excelus” brand are typically positioned as corporate office spaces, and  Lodha Supremus” brand are typically positioned to offer boutique office spaces.

5) Financials:

• Between the Fiscal Year 2018 to 2020, the Revenue of the company has shown a de-growth of -5.34% on a CAGR basis.
• While the Net Profit of the company has grown negatively at a CAGR rate of -36.5% between the FY18- FY20.
• Net Profit of the company has decreased from Rs. 1767 Cr. in FY18 to Rs. 1641 Cr. in FY19 and witnessed a heavy drop in the FY20 where Net Profit of the company came down to Rs. 733 Cr.
• The company has reported negative cash flows in FY 2019 & FY2020 as well.
• The company is having a contingent liability of Rs. 782,16 Cr. as of 31^st December 2020.

6) Strengths:

• Macrotech is one of India’s largest real estate developers with a leadership position in the MMR market.
• The well-established brand with the ability to sell at premium pricing and throughout the construction phase: Company aims to sell 80% of the saleable area during the construction phase.
• Proven end-to-end execution capabilities with continuous innovation and the ability to deliver projects at a competitive cost.
• Highly diversified portfolio across price points and micro-markets in the MMR with a focus on affordable and mid-income housing.
• Significant inventory of completed, ready-to-move units: As of Dec. 31, 2021 company is having a 5.5 million sq. ft. ready-to-move inventory of residential projects in India.
• Unique ability to develop townships and generate annuity-like cash flows from them.
• Since the real estate industry is a capital-intensive industry, there are high entry barriers.
• Benefits of regulatory norms especially in Maharastra where the government has reduced Stamp Duty, construction premium, and others.

7) Risks:

i) A substantial amount of debt, which could affect their liability to obtain future financing or pursue their growth strategy:

• As of December 31, 2020, Company has a debt of around Rs. 18,662 Cr. of aggregate outstanding borrowings on a consolidated basis.
• Of which Rs. 18,497 Cr. was secured indebtedness and ₹ 1,64 62 Cr. was unsecured indebtedness.

ii) Certain contingent liabilities if materialize, may affect the overall business.

iii) Effect of Covid-19 Pandemic.

iv) There are material outstanding legal proceedings involving our company, subsidiaries, associates, directors, promoters, and group companies.                                                                                           

v) Business of Macrotech Developers has geographically concentrated is around Mumbai Metropolitan Region. Besides this company has only projects in Pune and Central London, UK.

vi) ability to identify suitable parcels of land for development is a vital element of growing our business and involves certain risks, including identifying land with clean title and at locations that are preferred by our target customers.

vii) Sluggishness in the real estate sector which is expected to sustain till 2025.

8) Valuation:

• There are negative EPS for 9MFY20, but as per the EPS of FY20 and on the upper price band, Macrotech has a PE of 26.32 and P/B 5x.
• The company is having a high debt-to-equity ratio of 3.87 times.

9) Conclusion:

Macrotech Developers IPO is also not suggesting any high listing gains. As of now, this IPO is enjoying a grey market premium of just Rs. 4- Rs. 5. Real Estate Sector is going through sluggishness where Price Correction, as well as Time Correction, is possible. In addition to this, the Impact of Covid may also impact a lot to this sector. One should carefully analyze the sector as well as the company before applying to this IPO, as it can be a risky bet.