Macrotech Developers IPO to hit markets tomorrow; should you subscribe?

Initial public offer (IPO) by Macrotech Developers, erstwhile Lodha Developers, is set to hit the capital market on April 7, Wednesday. The company has fixed a price band of Rs 483-486 for the upcoming public offer. The Mumbai-based company has sold properties worth Rs 50,000 crore in the last seven years (FY14 to FY20), making it the largest developer in terms of annual sales bookings.

The realty major said it will reduce net debt by 24% to Rs 12,700 crore post its IPO. Select brokerage houses have given a ‘Subscribe’ rating to the issue, while others hold a ‘Neutral’ or ‘Not Rated’ kind of view on the IPO.

Here’s what they said on the forthcoming IPO:

Reliance Securities: Subscribe
Macrotech Developers’ plan to reduce net debt to Rs 12,700 crore in the coming quarters negates concern over high leveraging. Further, a strong project portfolio and monetisation of huge land banks offer comfort. Moreover, its return ratio looks to be superior compared to peers.

Angel Broking: Neutral
As per the different market source, the grey market premium has fallen down to less than 3%, Angel Broking expects listing gain will be very limited in this IPO, retail investors should not expect any such big listing gains as investors have seen in the past. There are also some investment concerns for the IPO, the company had net debt of Rs 16,700 crores as on December 31, 2020, any downturn in the industry may affect the company significantly. The company’s product portfolio is too concentrated on the residential market of the MMR region any change in rule and regulation by authority may affect the company significantly. Macrotech Developers has not been able to generate significant positive cash flow for the shareholder in the last three years and may continue to have negative cash flows in the near future.

Marwadi Shares and Finance: Not Rated
Considering FY20 adjusted EPS of 16.34 on a post-issue basis, the company is going to list at a price-to-earnings of 29.74 times with the market cap of Rs 21,739.7 crore while its peer Oberoi Realty is at a P/E of 30.80 times and Godrej Properties is at a P/E of 131.10 times. As of December 31, 2020, the ratio of total liabilities plus contingent liabilities to net worth was 9.5. If a significant portion of the contingent liabilities materialises, it could have an adverse effect on the results of operations, financial condition, and cash flows.