Unassuming promoter stake, loss-making operations, huge accumulated deficit, private equity investors off-loading at a loss, etc. do not exude optimism.
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SHRIRAM PROPERTIES OFFER AT A GLANCE |
|
| Offer Type | Book Built |
| Platform | Main Frame |
| Offer Size | Rs 600 Cr |
| Fresh Issue | Rs 250 Cr (2,11,86,441 equity shares) |
| Offer for Sale | Rs 350 Cr (2,96,61,017 equity shares) |
| Face Value | Rs 10 |
| Price Band | Rs 113–118 |
| Mkt/Bid Lot | 125 Nos. |
| Implied M-Cap | Rs 2,001 Cr |
| Implied Equity Cap | Rs 169.60 Cr |
| Free Float | 72.02% |
| Lead Manager | Axis Cap, ICICI Sec & Nomura Financial |
| Registrar | KFin Technologies |
| Listing | BSE, NSE |
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INDICATIVE ISSUE SCHEDULE |
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| Opening :8-Dec-2021 | Closing :10-Dec-2021 |
| Allotment :15-Dec-2021 | Refunding :16-Dec-2021 |
| DematCredit:17-Dec-2021 | Trading :20-Dec-2021 |
The Offer
The Chennai-registered (Bengaluru head-quartered) Shriram Properties Ltd (SPL) is entering the capital market with an IPO which consists of a fresh issue of Rs 250 Cr (2,11,86,441 equity shares) and an offer for sale of Rs 350 Cr (2,96,61,017 shares) from 37 existing shareholders. The offer is being made through the book-building route with a price band of Rs 113-118 for Rs 10 paid-up share.
Applicants for the IPO should bid for a minimum lot of 125 shares and multiples thereof. The shares are proposed to be listed on the main frame of BSE and NSE on Monday, December 20, 2021. Axis Capital, ICICI Securities and Nomura Financial Advisory are the lead-managers to the offer. KFin Technologies have been roped in as the registrar to the issue. The bidding opens on Wednesday, December 8, 2021 and closes on Friday, December 10, 2021.
The company proposes to utilize the net proceeds from the fresh issue (Rs 250 Cr) towards repayment/pre-payment of certain borrowings availed by the company and its subsidiaries, Shriprop Structures, Global Entropolis and Bengal Shriram (Rs 200 Cr) and general corporate purposes.
Lineage
The 2000-registered SPL is part of the Chennai-based four decade-old Shriram Group whose flagship is Shriram Transport Finance Co (STFC). SPL was originally incorporated as Synectics Infoway Private Ltd. The name was changed to Shriram Properties in 2003. STFC’s present Vice Chairman & Managing Director Umesh Revankar was one of the original signatories to the MoA of Synectics Infoway. Initially, Shriram Investments, Shriram Credit Syndicate, Shriram Surgical Equipment Finance were major shareholders of SPL. However, pursuant to a resolution passed by the Board on December 13, 2018, SPL identified M Murali, Shriram Properties Holdings (SPH) and Shriram Group Executives Welfare Trust (SGEWT) as its promoters.
Interestingly, the corporate Promoter, SPH, is 10 years younger than SPL. SGEWT too was formed after SPL, in November 2004. The beneficiaries of SGEWT include all the present and future senior executives including but not limited to whole-time directors, executive directors, managing directors and other higher management executives in any of the Shriram group companies. Envestor Ventures Ltd was earlier controlling SPH and transferred its entire stake to SGEWT post March 2018, pursuant to which, M. Murali (20.33%) and SGEWT (70.86%) became the major shareholders. SPH identified M. Murali and SGEWT as its promoters on December 5, 2018.
Even though SPL presents M Murali and SGEWT as promoters along with SPH, M Murali holds just six shares and SGEWT has 0.16% in SPL’s pre-IPO equity capital of Rs 148.41 Cr. SPH too is having an unassuming stake of only 31.82%. SPL received foreign investment from private equity investors since 2006 that is after the real estate sector in India was opened to foreign direct investment in March 2005. Currently, more than 58% of the company’s equity is owned by marquee investors affiliated with TPG, Tata Opportunities Fund, Walton Street Capital and Starwood. Apparently to honour the commitment (IPO by December 31, 2021) made to these private investors in the latest amended agreement, the company is now facilitating the exit route via IPO.
Key Management
Promoter-designated M Murali is the Chairman and Managing Director of SPL. He has over 17 years of work experience with the company. He was first appointed as a Director on March 30, 2003 and appointed as a CMD on December 13, 2018.
Stakeholders
Of the pre-IPO equity, whereas promoter SPH holds the single largest chunk of 31.82%, WSI/WSQI Mauritius holds 23.97%, TPG Asia has 16.56%, Omega TC holds 16.33% and Tata Capital Financial Services has 1.5%. Interestingly, the average cost of holding of the four large non-promoter investors is more than the IPO price!
Post-offer for sale, promoter SPH will have an unassuming stake of 27.84%. WSI/WSQI Mauritius will hold 14.3%, TPG Asia will have 9.88%, Omega TC will hold 9.75% and Tata Capital Financial will have 0.89% and their residual cost of holdings will increase to Rs 131.77, Rs 138.92, Rs 204.50 and Rs 204.50 respectively as compared to the IPO cap price of Rs 118.
Business
SPL is reportedly among the top five residential real estate companies in South India in terms of number of units launched between the calendar years 2012 and the third quarter of 2021. It claims to have some presence in the mid-market premium and luxury housing categories as well as commercial and office space segments. As of September 30, 2021, nearly 94% of its total estimated saleable area in ongoing projects, projects under development and forthcoming projects comprise residential segment.
The company commenced operations in Bengaluru in the year 2000 and have since expanded its presence to other cities in South India, i.e., Chennai, Coimbatore and Visakhapatnam. In recent years, it has also spread its wing to Kolkata.
Financial Track
Though SPL could collect hefty share premium of over Rs 1600 Cr in the past, the company has accumulated losses to the tune of over Rs 1100 Cr. As a matter of fact, its performance during last three fiscals has been depressing. At the end of September 2021, the company’s borrowings stood at Rs 695 Cr.
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Shriram Properties Consolidated Financials (in Cr) |
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| Period Ended |
Sep-21 |
Mar-21 | Mar-20 |
Mar-19 |
| Months |
6 |
12 | 12 |
12 |
| Operating Revenue |
118.18 |
431.5 | 571.96 |
650.13 |
| Other Income |
36.98 |
69.81 | 59.88 |
73.65 |
| Gross revenue |
155.16 |
501.31 | 631.84 |
723.78 |
| EBIDTA |
14.64 |
86.69 | 47.93 |
190.29 |
| EBIDTA % |
11.0 |
18.6 | 8.1 |
23.1 |
| Interest |
63.92 |
125.31 | 123.18 |
105.12 |
| Depreciation |
3.44 |
6.58 | 6.40 |
5.25 |
| Tax |
7.31 |
22.98 | 4.74 |
31.13 |
| Net Profit |
-60.03 |
-68.18 | -86.39 |
48.79 |
| Equity (Implied) |
169.60 |
148.11 | 148.11 |
148.11 |
| Reserves (Implied) |
1980.75 |
1752.03 | 1751.35 |
1740.45 |
| Accumulated Loss |
1131.27 |
1062.60 | 995.01 |
908.86 |
| Borrowing |
695.10 |
727.17 | 595.39 |
714.26 |
| Fixed Assets |
62.10 |
65.00 | 70.40 |
57.30 |
Valuation
Surprisingly, SPL has priced its IPO below the cost price of the private equity investors. Does that mean that the so called marquee investors were desperate to get out? If the elite investors could not get even a small return after a long wait, what can the loss-making company offer to the IPO investors?
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HOW SHRIRAM COMPARES WITH SOUTHERN REAL ESTATE DEVELOPERS |
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Financials |
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| (Amount in Cr) |
Shriram |
Prestige | Brigade |
Sobha |
| Market Cap |
2001 |
17587 | 11278 |
7955 |
| Borrowing |
727 |
3611 | 4007 |
2990 |
| Fixed Assets |
65 |
4667 | 1507 |
480 |
| Revenue |
431 |
7264 | 1950 |
2152 |
| Other Income |
70 |
237 | 60 |
39 |
| EBIDTA |
87 |
3654 | 459 |
756 |
| Interest |
125 |
990 | 347 |
601 |
| Net Profit |
-68 |
1552 | -96 |
62 |
| Equity Cap |
170 |
401 | 230 |
95 |
| Reserves |
1981 |
6274 | 2137 |
2333 |
| Acc. Loss |
1131 |
0 | 0 |
0 |
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Stock Features |
||||
| Current Price (Rs) |
118 |
439 | 491 |
839 |
| Face Value (Rs) |
10 |
10 | 10 |
10 |
| Book Value |
60 |
167 | 103 |
256 |
| Promoter Stake % |
27.98 |
65.48 | 43.96 |
51.99 |
| Debt/Equity |
0.71 |
0.54 | 1.69 |
1.23 |
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Profitability |
||||
| OPM % |
11.9 |
27.2 | 24.2 |
33.3 |
| Net Margin % |
-14.6 |
17.3 | -5.0 |
2.8 |
| Cash EPS |
-3.64 |
51.11 | 8.29 |
14.95 |
| Earnings Per Share |
-4.03 |
36.32 | -2.02 |
6.57 |
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Growth |
||||
| CAGR 3Yr Sales % |
-7.9 |
9.7 | 10.4 |
-2.7 |
| CAGR 3Yr EBIDTA % |
-39.9 |
46.5 | -8.1 |
9.9 |
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Return |
||||
| RONW % |
0 |
23.3 | 0 |
2.6 |
| ROCE % |
2.1 |
29.8 | 3.5 |
12.5 |
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Discounting |
||||
| Price/Earnings |
-29.3 |
12.1 | -243.5 |
127.7 |
| Price/Cash EPS |
-32.4 |
8.6 | 59.2 |
56.1 |
| Price/Book Value |
2.0 |
2.6 | 4.8 |
3.3 |
| Price/EBIDTA |
23.1 |
4.8 | 24.6 |
10.5 |
| Price/Revenue |
4.6 |
2.4 | 5.8 |
3.7 |
| Price/Fixed Assets |
30.8 |
3.8 | 7.5 |
16.6 |
Concern
- Four key personnel of the company have resigned since August 2020.
- Contingent liabilities with regard to Income tax matters pending amount to Rs 35 Cr.
- Guarantees given by SPL and its subsidiaries behalf of joint venture and others amount to over Rs 935 C