Should you subscribe to Macrotech Developers IPO?

The Rs 2,500 crore initial public offering (IPO) of Macrotech Developers, formerly known as Lodha Developers, opened for subscription on April 7 with a price band of Rs 483-486 a share. The three-day issue will close on April 9.

Investors can bid for a minimum of 30 equity shares and in multiples, thereafter, translating to a minimum bidding amount of Rs 14,580 at the higher end of the price band. A retail investor can at max apply for 13 lots or 390 shares for 1,89,540.

Ahead of the IPO, Mumbai-based Macrotech raised Rs 740 crore from anchor investors like Capital Group; Nomura; Ivanhoe Cambridge, real estate arm of CDPQ; Wellington Asset Management, Abu Dhabi Investment Authority, Abu Dhabi’s sovereign fund; Platinum Asset Management, Marshall Wace, Brookfield Asset Management, Segantii, York, Oxbow and Discovery, on March 6.

In the grey market, the issue is quoting at Rs 5-6 premium. “The real estate sector is showing some signs of bottoming out, if anyone wants to venture in real estate theme, other better options are available in the space with a sound and light balance sheet,” said Abhay Doshi, Founder of Unlisted Arena who tracks grey markets.

This is the third attempt when the developer has come up with its IPO. Previously in September 2009, the company had tried to raise Rs 2,800 crore via IPO and later in 2018. However, the global recession forced it to shelve the issue in 2009, while it retreated in 2018 due to adverse conditions in the sector.

Brokerage view

Reliance Securities – Subscribe

“The IPO is valued at 26.3x of FY20 earnings and 4.8x of FY20 book value, which appears to be reasonably priced vis-à-vis its peers like Godrej Properties and DLF. 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 the monetization of huge land banks offer comfort. Moreover, its return ratio looks to be superior compared to peers,” stated the report.

SMC – Avoid

“Macrotech Developers is one of the largest real estate developers in India. The company plans to pare its debt obligations by 15 billion rupees using proceeds from the sale. However, the company has high leverage, which signifies that it has little ability to absorb any shocks of unforeseen events. Moreover, its balance sheet is stressed. In this scenario where many listed players are available with a healthy balance sheet, this IPO can be given a miss,” said the brokerage firm.

Marwadi Shares and Finance – Unrated

“Considering FY20 adjusted EPS of 16.34 on a post-issue basis, the company is going to list at a P/E of 29.74X with the market cap of Rs.2,17,397 million while its peer Oberoi Realty is at a P/E of 30.80X and Godrej Properties is at a P/E of 131.10X. 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 materializes, it could have an adverse effect on the results of operations, financial condition and cash flows,” noted the report released by Marwadi Shares & Finance.

Choice – Subscribe

“At the higher price band of Rs. 486, the company is demanding a TTM EV/Sales multiple of 6.3x, which is at discount to the peer average of 8.5x. Thus, the issue seems to be attractively priced. Moreover, the real estate sector is witnessing significant consolidation, especially after the NBFC crisis. Dominant players like Macrotech are likely to benefit in the medium to long term. However, the resurgence of the Covid-19 infection and discontinuation of stamp duty waiver on property registration would dent the sentiment in the near term,” mentioned the report.

(Disclaimer: The recommendations in this story are by the respective research and brokerage firm. Money9 & its management do not bear any responsibility for their investment advice. Please consult your investment advisor before investing)