Shriram Properties makes a weak debut, lists 24% below issue price

Shares of Shriram Properties were listed at Rs 90, a 24 per cent discount to its issue price of Rs 118 per share on the National Stock Exchange

Shriram Properties (SPL) has made a weak stock market debut, with its shares listed at Rs 90, a significant 24 per cent discount to its issue price of Rs 118 per share on the National Stock Exchange (NSE). The stock opened at Rs 94, a 20 per cent lower against its issue price on BSE.

At 10:01 am; SPL traded at Rs 94.35 on the BSE. It hit high of Rs 97 and a low of Rs 91.75 in intra-day trade so far. A combined 5.8 million equity shares changed hands at the counter on the NSE and BSE. In comparison, the S&P BSE Sensex was down 1.9 per cent at 55,922.

SPL is one of the leading residential real estate development companies in South India and stands among top five in terms of number of units launched between calendar year 2012 (CY12) - Q3 CY21 across Tier 1 cities of South India.

The company primarily focused on the mid-market and affordable housing categories (83.69 per cent of 16.76 million square feet total saleable area for completed projects). Additionally, SPL has presence in the mid-market premium and luxury housing categories, and commercial and office space segments.

SPL is funded by marquee global and domestic financial investors with 58.34% of the company’s outstanding equity (as of September 30, 2021) is owned by TPG, Tata Opportunities Fund, Walton Street Capital and Starwood.

SPL part of the Shriram Group and backed by Marquee Investors. It demonstrated robust capabilities in project identification and execution track record having recorded 22.6 per cent pre-sales volumes CAGR over FY17-21. The company has scalable and asset light business model supported by strong financial position. SPL is well positioned to benefit from regulatory and industry developments are among key tiggers of the stocks, analysts at ICICI Securities said in IPO note.

Although the company has a strong brand name in South India, during COVID when real estate was booming, they suffered losses. Shriram Properties has an MCAP/Sales ratio of 4.6x while its peers Sobha, Puravankara, and Prestige offer 3.8x, 3.3x, and 2.4x respectively, said Aayush Agrawal, Senior Analyst, Swastika Investmart.

The business and profitability is significantly dependent on the performance of the real estate market in India, generally, and particularly in South India. The fluctuations in market conditions may affect its ability to sell its projects at expected prices, which may adversely affect the revenues and earnings. The extent to which COVID-19 disease may affect the business and operations in the future is uncertain and cannot be predicted.

The real estate development activities are geographically concentrated in key cities in South India. Consequently, it is exposed to risks from economic, regulatory and other changes as well as natural disasters in South India, which in turn may have an adverse effect on the business, results of operations, cash flows and financial condition. SPL has a significant amount of debt, which could affect its ability to obtain future financing or pursue its growth strategy are among key concerns said HDFC Securities in IPO note.