Macrotech Developers' IPO draws mixed response from brokerages

The firm is one of India's largest developers by residential sales value for FY14 to FY20. Its core business is residential real estate development with focus on affordable and mid-income housing

The initial public offering (IPO) of Macrotech Developers, earlier known as Lodha Developers, will open today with a price band of Rs 483-Rs 486 per share. The IPO, which closes on Friday, comprises fresh issuance of 51 million equity shares worth Rs 2,480 crore. The company proposes to utilise the net proceeds from the IPO towards debt reduction of up to Rs 1,500 crore, acquisition of land or land developmental rights aggregating up to Rs 375 crore, and for general corporate purposes.

Macrotech Developers is one of the largest real estate developers in India, by residential sales value for the financial years 2014 to 2020. Its core business is residential real estate development with a focus on affordable and mid-income housing. As of December 31, 2020, it has completed approximately 77.2 million square feet of developable area across 91 projects. It has 54 ongoing and planned projects having approximately 73.8 million square feet of developable area.

According to the company’s presentation, revenue from operations fell from Rs 13,527 crore in FY18 to Rs 9,580 crore in FY20, owing to prolonged slowdown in the realty sector as well as Covid-led business disruptions in FY20. Over that period, its earnings before interest, tax, depreciation, and amortisation (Ebitda) fell from Rs 4,040 crore to Rs 2,920 crore, while net profit plunged from Rs 1,789 crore to Rs 1,210 crore. Lower sales due to Covid and impact of fixed costs due to high operating leverage led to a net loss in the first nine months of FY21. Gross debt, which increased in FY19 led by rise in inventory, has since declined to Rs 18,662 crore as of December 2020.

Here’s what brokerages say:

Reliance Securities -- Subscribe

The IPO is valued at 26.3x FY20 earnings and 4.8x FY20 book value, which appears to be reasonably priced vis-à-vis its peers like Godrej Properties and DLF. Macrotech Developers is committed to substantially deleverage its balance sheet in ensuing quarters led by: IPO proceeds; recovery of investment from the UK projects; and improved collections. Macrotech’s plan to reduce net debt in the coming quarters negates concern over its high leveraging. Further, strong project portfolio and monetisation of huge land banks offer comfort. Moreover, its return ratio looks to be superior compared to peers. Hence, we recommend 'Subscribe' to the issue.

Angel Broking -- Neutral

The company has a strong brand in affordable and mid income housing projects, but is not able to deliver the growth in sales and free cash flow in the last couple of years. It has reported sales de-growth of 68 per cent in 9MFY21 and reported a net loss of Rs 264 crore. Given weak revenue growth in the past and leveraged balance sheet we assign a 'Neutral' rating to the IPO.

Ventura Securities -- Not rated

The real estate market in India has delivered a compounded annual growth rate (CAGR) of approximately 10 per cent, growing from $50 billion in 2008 to $120 billion in 2017, and is expected to further grow at a CAGR of 17.7 per cent to reach $1 trillion by 2030. Its residential projects are mainly in the MMR and Pune region. In 2019, it forayed into the development of logistics and industrial parks. It also develops commercial real estate. As on December 31, 2020, Macrotech Developers has 91 completed projects comprising 77.22 million sq.ft of developable area. The company has a high net debt to equity of 4x in FY20. At the upper band of Rs 486, the company is valued at 18.4x FY20 enterprise value/Ebitda.