Shriram Properties is part of one of the most reputed business houses based out of Chennai. Shriram is already a well-known name in the stock markets with two of its group stocks viz. Shriram Transport Finance and Shriram City Union Finance listed on the bourses. Shriram Properties, is part of the Shriram group with promoters holding 31.98% with global PE investors being the major investors.
Shriram is focused on the mid and affordable housing segments in South India. While it is focussed on Chennai and Bengaluru, the company already has a presence in fast growing cities like Coimbatore, Visakhapatnam and Kolkata. Till date, Shriram has completed 29 projects and has another 35 projects under execution. Its ongoing projects spread across affordable housing, luxury housing and office spaces have estimated 46.72 million SFT.
Let us now turn to how the overall capital will be structured pre and post the IPO, which will be a combination of a fresh issue and an offer for sale (OFS)
- The fresh issue portion comprises of a total of 2,11,86,441 share which aggregates to Rs.250 crore if you consider the upper price band of Rs.118. the fresh funds will be utilized to deleverage the balance sheet of Shriram Properites and its subsidiaries.
- The OFS component will comprise the issue of 2,96,61,017 shares worth Rs.350 crore assuming the upper price band of Rs.118. Promoters are not diluting their stake in the OFS. Early investors; Omega TC, TCFSL, TPG Asia and WSI/WSQI will offload 77.08 lakh shares, 7.07 lakh shares, 78.14 lakh shares and 113.13 lakh shares respectively.
- If the fresh issue and the OFS are combined, the total issue size would entail the issue of 5,08,47,458 shares with total issue size of Rs.600 crore, at the upper price band. Due to the combination of the offer for sale and fresh issue, promoter’s stake will come down from 31.98% to 27.98%, although promoters will not offer shares in the OFS.
Real estate sector suffered on multiple counts ranging from social distancing, restrictions on operations, supply chain bottlenecks and mass migration of labour to villages during the last 2 years. This seriously impacted the sales and profit performance in FY20 and also in FY21, which explains the fall in revenues and profits turning negative in last two years.
Shriram Properties is expected to have an indicative listing market cap of Rs.2,001 crore assigning a P/E ratio 41X on FY19 earnings. However, at multiple touchpoints, it has been noticed that real estate demand is robust, which will make the current valuation look relatively reasonable in the coming quarters.
How should investors approach the IPO of Shriram Properties?
Here is what investors must consider before taking an investment call on the Shriram Properties Ltd IPO.
- Shriram Properties is backed by the Shriram Group. This gives it an automatic gateway to vast cross selling opportunity as well as a very strong and loyal hold among the small and medium sized housing market in Southern India.
- Shriram Properites has its plans woven around the fast growing markets of Chennai and Bengaluru, which are emerging as IT and ITES hubs. They will benefit extensively in the housing market from the demand turnaround. Group dynamics will be the cutting edge.
- Realty IPOs have been infrequent in recent times and the last major IPO of Macrotech was more than a year ago. Since the stock of Macrotech has done very well post listing, Shriram Properties can emerge as a proxy for affordable housing opportunity.
- The group is adequately capitalized and the backing of Shriram brand gives added sense of stability and trust in Southern markets. Also, promoters are not diluting their stake in the OFS and that should instil further confidence for IPO investors.
Low asset turnover ratios and the possibility of Omicron returning are a systemic risk to this sector.
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