Lodha Developers makes weak stock market debut as shares fall 5.8%

Shares of Macrotech Developers, also known as Lodha Developers, fell as much as 13 per cent on their stock market debut on Monday, before recouping half of the losses and settling at Rs 458, down Rs 28 or 5.8 per cent. It touched a low of Rs 423 and a high of Rs 478 on the NSE, where Rs 20,484 crore worth of shares changed hands.

The poor listing comes amid weakness in the secondary market because of the rise in Covid-19 infections and lockdown measures imposed in key states. Since Lodha’s Rs 2,500-crore IPO closed on April 9, the Sensex has declined by 3.3 per cent.

Also, the investor response to Lodha’s IPO was lukewarm with the issue garnering just 1.4 times subscription. The retail and employee portion of the issue had managed to garner just 40 per cent and 17 per cent subscription, respectively.

At Monday’s closing price, Lodha had a market capitalisation of Rs 20,718 crore — making it the third most-valued developer in the listed space behind DLF and Godrej Properties and slightly ahead of Oberoi Realty.

Analysts said the company is reasonably valued at 26 times its financial year 2019-20 (FY20) earnings. However, high debt is a concern.

“The company has a substantial amount of debt and contingent liabilities and the impact of Covid-19 on the business is still uncertain. Moreover, the company is hugely focused on the Mumbai Metropolitan Region, which is the worst affected by the Covid crisis. Hence, we advise investors to exit in case of any bounce back in the share price,” said Saurabh Joshi, research analyst at Marwadi Shares and Finance.

Macrotech’s successful listing ends a more than decade-long effort to take the developer public, after previous attempts in 2009 and 2018 were shelved. A global equity rout in mid-October 2018, caused by concerns about geopolitical tensions and rising interest rates, upended its plan to raise Rs 5,500 crore then.

Macrotech aims to use the funds from its IPO to help reduce its debt load by at least Rs 1,500 crore. The company also plans to push ahead with asset sales to reduce net debt to Rs 12,700 crore from the Rs 18,400 crore it carried as of December, according to Chief Executive Officer Abhishek Lodha. Founders of Macrotech, which includes CEO Lodha and a family trust, still own about 88.5 per cent after the listing.

Rajnath Yadav, an analyst with Choice Equity Broking, said large real-estate firms with better access to capital and ability to leverage are capturing market share held by smaller play­ers, and Lodha with unsold inventory of 5.5 million square feet of ready-to-move residential projects, may benefit. 

“The next trigger for the stock will be the company’s ability to reduce the huge inventory,” Yadav said, advising investors to buy the stock for the longer term.