IPO Analysis: Macrotech Developers

IPO rating- Invest for long-term gain 

About the issue 

Macrotech Developers, a real estate company is coming out with its initial public offering (IPO) of equity shares of the face value of Rs 10 each. Promoters of Macrotech Developers hold a 100 per cent stake in the firm and aims to sell a 10 per cent stake through the issue. The public issue comprises 5,14,40,328 equity shares of Rs 10, aggregating up to Rs 2,500 crore. The price band of the issue has been fixed at Rs 483 to Rs 486 per equity share. The IPO will open on April 7 and would close on April 9, 2021. The issue may list on April 22, 2021. The IPO market lot size is 30 shares. A retail-individual investor can apply for up to 13 lots (390 shares for Rs 1,89,540). The quota for retail investors in Macrotech Developers' initial public offer (IPO) has been fixed at 35 per cent of the net offer. The QIB quota is fixed at 50 per cent while the NII quota is at 15 per cent. The objectives of the offer are to reduce aggregate outstanding borrowings of the company on a consolidated basis, acquire land and meet other general corporate purposes. 

About the company 

Founded in 1995 by Mangal Prabhat Lodha, Lodha developers, now renamed as Macrotech Developers, is one of India's largest real estate players by sales bookings. The core business of the company is residential real estate developments with a focus on affordable and mid-income housing. They also develop commercial real estate, including a part of mixed-use developments in and around core residential projects. It is also involved in the development of logistics and industrial parks. As of December 2020, the company has consolidated outstanding borrowings to the tune of Rs 18,662.19 crore. They have an in-house sales team, which is supported by a distribution network of multiple channels across India as well as key non-resident Indian markets. Most of the properties of the company are in Mumbai. They also have a presence in Hyderabad, Pune, and London. Understanding the relevant real estate market, positive perception and trust in the brand, innovative design, and marketing as well as branding techniques enable the company to attract customers. Under the logistic and industrial park portfolio, it has planned to develop an industrial park of over 800 acres of land near Palava (Maharashtra). 

Competitive strengths 

One of the largest residential real estate developers in India. 

Strong sales distribution network across India as well as NRI markets i.e., GCC, UK, Singapore, and the US. 

A diversified portfolio of projects – across the residential, office, and retail, catering to various customer segments. 

Strong project execution capabilities. 

Brand equity and premium pricing. 

Financials 

The company reported consolidated profit at Rs 745 crore on revenue of Rs 12,443 crore in FY20, with a profit of Rs 1,644 crore on revenue of Rs 11,907 crore in FY19. For the nine-month period ended December 2020, it posted a loss of Rs 264 crore on revenue of Rs 2,915 crore, largely impacted by the COVID-19 pandemic. However, at the operating level, the performance remained better with operating profit at Rs 3,167 crore, Rs 1,921 crore and Rs 564 crore in FY19, FY20, and in the nine-month period ended December 2020. 

Valuation & recommendation  

Macrotech Developers is among the largest real estate developers in India by residential sales value for the financial years of 2014 to 2020. India’s residential sector, which has seen a slowdown for years now, was further disrupted by the pandemic. However, in recent months, home sales have seen a comeback in large cities, particularly in Mumbai Metropolitan Region, which is Macrotech’s core area of operations. They have 54 ongoing projects across London, Mumbai, and Pune. Moody's Investors Service had changed the outlook on Macrotech's ratings to stable from negative in November, citing better liquidity after the firm refinanced a construction loan and improved operating performance. The company plans to leverage its leadership position to act as a partner of choice for landowners and grow using a joint development, pursue a value-accretive land acquisition strategy, provide essential after-sales services as well as develop large-scale industrial parks. The listed peers are Brigade Enterprises Ltd, DLF Limited, Godrej Properties Ltd, Oberoi Realty Ltd, Prestige Estates Projects Ltd, Sobha Ltd, and Sunteck Realty Limited. Given that it is one of the leading players in the western Maharashtra region with the recent improvement in sales, its medium-term outlook looks positive. Looking at the above positives, we believe that the company will keep growing its business at a healthy rate, and hence, you can invest for long-term gain.