Macrotech Developers IPO – Can India’s largest realty company fly?


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India has not seen mega IPO issues from real estate companies in a long time. The last big IPO was from DLF in 2007 and post 2008, the realty companies went into a prolonged lull. In fact, realty companies are yet to even come close to their 2007 highs. After a long time, we have a big realty IPO from a reputed name like Macrotech Developers. Formerly Lodha Developers, Macrotech is the largest realty company in India by size.

Macrotech predominantly operates in the affordable segment in the suburbs of Mumbai and the low and mid segment contributes nearly 57% of its annual revenues. As of Dec-20 last year, Macrotech has completed 91 projects spanning 77.22 million SFT. The promoter, Mangal Prabhat Lodha, has been associated with the ruling NDA for a long time.

Key terms of Macrotech Developers IPO

Macrotech Developers is coming out with an IPO of 5.144 crore shares with an issue size of Rs.2,500 crore. The entire issue will be by way of fresh issue and so the entire funds will come into the company and will also result in dilution of earnings of the company.

Key IPO DetailsParticularsKey IPO DatesParticulars
Nature of issueBook BuildingIssue Opens on07-Apr-2021
Face value of shareRs.10 per shareIssue Closes on09-Apr-2021
IPO Price BandRs.483 – Rs.486Basis of Allotment date16-Apr-2021
Market Lot30 sharesRefund Initiation date19-Apr-2021
Retail Investment limit13 Lots (390 shares)Credit to Demat20-Apr-2021
Retail limit – ValueRs.189,540IPO Listing date22-Apr-2021
Fresh Issue SizeRs.2,500 crore  
Offer for Sale SizeNilPre issue promoter stake100%
Total IPO SizeRs.2,500 croreIndicative valuationRs.21,740 crore
Listing onBSE and NSEHNI Quota15%
QIB Quota50%Retail Quota35%

Data Source: IPO Filings

A quick take on Macrotech Developers

Macrotech has been the largest real estate developer in India by sales value between 2014 and 2020. Its residential projects in the affordable homes segment are concentrated in the Mumbai Metropolitan Region (MMR) and Pune. The mid-segment projects are sold under the brand of CASA and Crown while its luxury projects are sold under the brand of Lodha Luxury. Lodha also sells office spaces under brands like Excelus, Supremus and Ithink.

Till date, Lodha has completed projects covering 59.13 million SFT in affordable housing projects, 12.15 million SFT in luxury housing and 5.21 million SFT in office spaces. In addition, Lodha also has 28.78 million SFT of projects under execution of which 23.57 million SFT is in affordable housing, 2.80 million SFT in premium housing and 2.38 million SFT in office spaces.

Key takeaways from the Macrotech IPO offering

While the realty company has been the largest player over last 6 years, its performance in terms of profits and margins have been erratic. Here are some highlights.

  • Macrotech has a 10% share in the MMR region and has delivered sales revenues of Rs.50,000 crore over last 7 years.
  • In the last 3 years, Macrotech has maintained average EBITDA margins of around 30% and PAT margins of 13-14%.
  • The company has followed an asset light strategy, which is evident in its ability to maintain RONW at reasonable levels even in tough markets.
  • Macrotech has recently also forayed into the highly specialized and profitable segment of logistics and industrial parks with 800 acres under development near Palava.

How will the funds be used by Macrotech?

The largest chunk of the Rs.2500 crore raised through the fresh issue will be allocated to reduction of debt so as to improve its solvency matrices. The company will also use part of the funds to purchase land and land development rights. A small portion will also go towards general corporate expenses and handling any shortfalls in routine working capital gaps for the business.

Should you be investing in the Macrotech IPO?

That is a decision you must take in consultation with your financial advisor but the company surely has certain positives. For starters, Macrotech has the best RONW in the industry of 17.6%. The next best is Sobha with 11.6%. The other realty companies have RONW levels in single digits only. Post 2019, the profits have been badly hit due to the COVID pandemic and the impact on construction work. Hence the profits of 2020 and 2021 may not be too reflective. Also, its existing projects in the MMR region are likely to be value accretive in the coming quarters.

However, there are two concerns. This the third attempt of Macrotech for the IPO and the company had to drop IPO plans twice in the past. Secondly, Macrotech has debt of around Rs.16,500 crore of which nearly 85% is short term in nature. That could create liquidity risk for the company. But, Macrotech offers a reasonable exposure to India’s largest realty company and will suite the investors with a longer time horizon and higher risk appetite.

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