Shriram Properties - IPO - A Play on Southern Realty Theme; Healthy Land Bank Value - Reliance Securities

About the Company

Shriram Properties Ltd (SPL) is a part of the Shriram group, with a focus on the affordable housing segment. The company primarily focuses on the mid range-to-affordable markets. SPL is among the top five residential real estate companies in South India, with projects across Tier 1 cities, including Bengaluru, Chennai and Hyderabad. SPL started operations in Bengaluru in the year 2000 and has since expanded presence to other cities. In addition, it operates in Kolkata in East India, where it is developing a large mixed-usage project. Bengaluru and Chennai are the two key markets for SPL, contributed ~29% of new launches in the country during the last decade. Mid-market and affordable housing segments contributed ~75% of the overall residential units' absorption in the last three years. SPL has proposed a partial exit plan to its 4 existing investors -- TPG Capital, Tata Capital, Walton Street Capital and Starwood Capital -- which hold a 58% stake in the company.

As of Sept'21, SPL has completed 29 projects, representing 16.76mn sqft of saleable area, of which 24 completed projects are in the cities of Bengaluru and Chennai that contributed ~91% of the saleable area. Further, ~84% of the total saleable area for completed projects were in the mid-market (52%) and affordable (32%) segments. SPL has a total portfolio of 26 ongoing projects of 26.3mn sqft, 5 under development projects of 8.3mn sqft and 4 upcoming projects of 12.2mn sqft.

Across these projects, the mid-market and affordable housing category accounted for an aggregate of ~71.5% of total estimated saleable area. Meanwhile, Bengaluru and Chennai accounted for ~67% of the total estimated saleable area as of Sept'21. In addition, SPL has a land bank of ~197.47 acres, with a development potential of ~21.45mn sqft of estimated saleable area in prime location of Kolkata, which may fetch a value of Rs10-15bn going ahead.

Financials in Brief

SPL has doubled its sales volume in the post RERA regime and has stabilized its net volume at 3-3.5mn sqft despite the NBFC crisis in 2019 and fallouts of Covid-19. It also maintained a sales-at-launch rate of 40% during 1HFY22. The company's overall execution timeline is improving and there are 10 large projects of >1.5mn sqft in progress. SPL achieved its pre-sale volumes despite the pandemic and collections increased by 116% in 1HFY22, from the pre-Covid phase. In 1HFY22, operating cash flow was ~Rs450mn, while net free cash flow was negative, primarily due to the repayment of loans worth Rs460mn. The entire portion of net debt is mostly from project-level construction funding and the repayment would reduce the burden in post-Covid collection phase.

Our View: SUBSCRIBE

The IPO is valued at 2.4x price-to-book and 4.6x price-to-sales based on FY21 financials. SPL's debt-to-equity was 0.9x in 1HFY22. We have a cautious view on the IPO in terms of limited upside from IPO price. Considering the company's healthy land bank, we expect a listing gain. The realty sector is poised to grow led by low housing interest rates coupled with government's initiatives to provide incentives to home buyers. Good projects pipeline, stronger presence in core markets are the company's key strengths. SPL 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. We recommend SUBSCRIBE to the issue with limited listing gain.

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Source : Equity Bulls

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