IPO Analysis: Shriram Properties Ltd

IPO Rating: Invest for long-term  

About the issue:  

As the name suggests, the company operates in realty space primarily in South India in the residential segment. The company is coming out with its initial public offering (IPO) of equity shares of the face value of Rs 10 per equity share. The maiden offer comprises a fresh issue of Rs 250 crore and an offer for the sale of shares worth Rs 350 crore by existing investors, according to its red herring prospectus. The price band of the issue has been fixed at Rs 113 to Rs 118 per equity share. The IPO opening date is December 8, 2021, while it will be closing on December 10, 2021. The issue will be listed on the exchange on December 20, 2021. The IPO market lot size is 125 shares. A retail-individual investor can apply up to a maximum of 13 lots (1625 shares or Rs 191,750).   

The objects of the offer are:   

Repayment and/or pre-payment, in full or part, of certain borrowings availed by the company and its subsidiaries, Shriprop Structures, Global Entropolis and Bengal Shriram; and General corporate purposes, subject to applicable laws.  

Shriram Properties IPO Details: 

About the company:  

Incorporated in 2000, Shriram Properties is a part of the Shriram Group and is one of the leading residential real estate development companies in South India. The company primarily focuses on the mid-market and affordable housing segments. The company is also present in the mid-market premium and luxury housing categories as well as commercial and office space categories. Bengaluru and Chennai are the key markets for the company. It also has operations in Coimbatore, Visakhapatnam, and Kolkata.  

As of September 30, 2021, the company has completed 29 projects, out of which 24 are in the cities of Bengaluru and Chennai. As of September 30, 2021, the company has a total portfolio of 35 projects in ongoing, projects under development, and forthcoming projects, stages, aggregating to 46.72 million square feet of estimated saleable area.  

Competitive Strengths:  

Part of the reputed Shriram Group  

One of the leading residential real estate development companies in South India  

Proven capabilities in project identification and execution  

Strong strategic relationships with financial investors  

Scalable and asset-light business model  

Strong Financial Position  

Well-positioned to benefit from regulatory and industry developments  

The experienced and professional management team  

 
Company Financials:  

Revenue from the sale of constructed properties, comprised 55.36 per cent, 57.21 per cent, 67.46 per cent and 76.63 per cent of its total income for the six months ended September 30, 2021, and financial years 2021, 2020 and 2019, respectively. Its average cost of debt was 14.16 per cent, 14.05 per cent, 13.54 per cent and 12.89 per cent for the six months ended September 30, 2021, and financial years 2021, 2020 and 2019, respectively. 

Recommendation: 

According to the JLL report, the company is among the top six players in terms of new launches of residential projects in its core market of Bengaluru between the calendar year 2012 to the third quarter of 2021, and the fourth-largest player in Chennai between the calendar year 2014 and the third quarter of 2021. It is transitioning from a real estate development model to a combination of real estate development and real estate services-based business model, with a shift towards an asset-light business strategy.  

It has realized net sales volumes of 1.56 million square feet, 3.00 million square feet, 3.25 million square feet and 3.56 million square feet of saleable area for the six months ended September 30, 2021, and the financial years 2021, 2020 and 2019, respectively. It has realized pre-sales volumes of 1.56 million square feet, 3.00 million square feet, 3.25 million square feet and 3.56 million square feet, of saleable area for the six months ended September 30, 2021, and the financial years 2021, 2020 and 2019, respectively. It has been able to achieve such pre-sales volumes despite the effect of COVID-19 second wave-led lockdown in its core markets of more than one and a half months during the first half of the Financial Year 2022, and in the first wave-led nation-wide lockdown imposed by the Government of India of nearly five months of the Financial Year 2021. 

Above all, this realty stock is heavily impacted by industry trends. Looking at the current lower interest rate environment, the stock can be in a comfortable position in the next one to two years despite short term uncertainty regarding the omicron variant. Hence, we recommend investing in the IPO for the long term.