Popular brand notwithstanding, fluctuating past performance, uncertain future prospects and steep IPO valuation dilute attraction.
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KEYSTONE REALTORS OFFER AT A GLANCE |
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| Offer Type | Book Built |
| Platform | Main Frame |
| Fresh Issue | Rs 560 Cr (1,03,51,201 equity shares) |
| Offer for Sale | Rs 75 Cr (13,86,322 equity shares) |
| Face Value | Rs 10 |
| Price Band | Rs 514-541 |
| Mkt/Bid Lot | 27 Nos |
| Implied M-Cap | Rs 6,160 Cr (at cap price) |
| Implied Eq-Cap | Rs 113.87 Cr |
| Implied Free Float | 13.3% |
| Lead Manager | Axis Capital and Credit Suisse Securities |
| Registrar | Link Intime |
| Listing At | BSE, NSE |
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INDICATIVE ISSUE SCHEDULE |
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| Opening : 14-Nov-2022 | Closing : 16-Nov-2022 |
| Allotment : 21-Nov-2022 | Refunding : 22-Nov-2022 |
| Demat Credit : 23-Nov-2022 | Trading : 24-Nov-2022 |
The Offer
Headquartered in the financial capital of India, Keystone Realtors Ltd (KRL), whose real estate projects are implemented under the banner `Rustomjee’, is making its capital market debut with a Rs 635 Cr IPO which consists of a fresh issue of Rs 560 Cr (1,03,51,201 equity shares) and an offer for sale of Rs 75 Cr (13,86,322 equity shares). The offer is being made through the book-building route with a price band of Rs 514-541 for Rs 10 paid-up share.
Applicants for the IPO should bid for a minimum lot of 27 shares and multiples thereof. The shares are proposed to be listed on the main frame of BSE and NSE on Thursday, November 24, 2022. Axis Capital and Credit Suisse Securities are acting as the lead-managers to the offer. Link Intime has been roped in as the registrar to the issue. The bidding opens on Monday, November 14, 2022 and closes on Wednesday, November 16, 2022.
KRL will utilize the net proceeds from the fresh issue (Rs 560 Cr) towards repayment of its and subsidiaries’ loans to the extent of Rs 342 Cr. The balance amount is earmarked for funding acquisition of future real estate projects and general corporate purposes.
Lineage
Founded in 1995 by Boman Irani and Tehmton Irani, who are the adopted sons of Rustom Irani – patriarch of Rustomjee Builders family, KRL is a prominent residential real estate developer in and around Mumbai city. As of June 30, 2022, it had 32 Completed Projects, 12 Ongoing Projects and 21 Forthcoming Projects across the Mumbai Metropolitan Region that includes a comprehensive range of projects under the affordable, mid and mass, aspirational, premium and super premium categories, all under its `Rustomjee’ brand. It had developed 20.22 million square feet of high-value and affordable residential buildings, premium gated estates, townships, corporate parks, retail spaces, schools, iconic landmarks and various other real estate projects.
Though both Boman Irani and Tehmton Irani were the signatories to the MoA, the company is currently under the control of the former. KRL has partnerships with strategic investors such as HDFC Capital Affordable Real Estate Fund – 3 (managed by HDFC Capital Advisors Ltd). It also has strategic investors such as Lipalton – wholly-owned subsidiary of Keppel Land Ltd for Rustomjee Urbania, an integrated township located in Thane.
In the past, the company has received equity investments from Giza (an entity advised by Xander Investment Management) for Rustomjee Urbania and HDFC Capital Affordable Real Estate Fund – 1 for its township in Virar. In addition, the company also has funding arrangements with leading financial institutions such as L&T Finance, ICICI Bank, Standard Chartered Bank and Indian Bank.
Key Management
KRL management team is led by its main promoter Boman Irani as Chairman and Managing Director. He is a first-generation real estate developer with over 26 years of experience in the real estate industry. Co-promoter and sibling of Boman Irani, Percy Sorabji Chowdhry, is one of the executive directors. He holds a bachelor’s degree in commerce and has 23 years of experience in the real estate industry. Another promoter Chandresh Dinesh Mehta is also designated as executive director. He holds a bachelors degree of technology in electrical engineering and a post-graduate diploma in management. He has over 26 years of experience in the real estate industry.
Sajal Gupta is the group chief financial officer and head of corporate strategy. He holds a bachelor’s degree in commerce and is also member of the Institute of Chartered Accountants of India. He has been associated with KRL since 2015. Prior to joining KRL, he was associated with AMW Motors and OTIS Elevator.
Venkatraman B who holds a bachelor’s degree in civil engineering is the Chief Operating Officer. He has been associated with the company since 2014. Prior to joining KRL, he was associated with K. Raheja Universal.
Stakeholders
Of the pre-IPO equity capital of Rs 103.52 Cr, the promoters have as much as 96.71% of which selling promoters Boman Irani holds 46.91%, Percy Sorabji Chowdhry and Chandresh Mehta hold 23.46% each. The institutional shareholder, HDFC Capital Affordable Real Estate Fund – 3, holds 1.45% and the rest (1.84%) is held by employees and others under the public category.
Post-IPO the promoters will hold 86.70%, of which Boman Irani will hold 42.04%, while Percy Sorabji and Chandresh Mehta will hold 21.02% each. Post offer for sale, the average cost of holding for Boman and Percy will be negative 4.42 per share and for Chandresh Mehta it will be a negative 4.43 per share.
Business Model
KRL has a diversified suite of projects across a wide range of price points, and a presence in several micro markets. It has undertaken lifestyle projects, high value standalone buildings, gated communities and fully integrated townships, re-developments and stalled projects.
The company strategically introduces differentiated offerings and corresponding amenities based on the needs of the location and community to maximise its revenue. Over the years, it has implemented designs based on customer insights and eco-friendly construction technologies to deliver modern lifestyle solutions and a diverse range of projects.
As part of its business model, KRL focuses on entering into joint development agreements, redevelopment agreements with landowners or developers or societies, and slum rehabilitation projects, which requires lower upfront capital investment compared to direct acquisition of land parcels. Its business model allows the company to minimise the upfront capital expenditure compared to direct acquisition of land parcels, which ensures that their capital allocation is balanced and calibrated, allowing it to generate revenue with lower initial investments.
The company has adopted an integrated real estate development model, with capabilities and in-house resources to execute projects from its initiation to completion. KRL claims to have developed in-house competencies for every stage of the property development life cycle, commencing from business development, which involves identification of land parcels and the conceptualization of the development, to execution, comprising planning, designing and overseeing the construction activities, marketing and sales. As of June 30, 2022, it had 1,542 channel partners who present the Rustomjee portfolio to their customers and drive customers’ traffic to KRL’s projects.
Financial Track
KRL achieved its peak performance in terms of billing in fiscal 2019. During the next three years revenue slid drastically and profits fluctuated wildly. In Fiscal 2021, the company generated a one-time profit of Rs 281 Cr by converting its subsidiary, Kapstone Constructions Private Ltd, into a joint venture entity. But for this, the bottom line for the year would have been in red.
The company’s Q1-FY23 performance is also far from encouraging. For Q1 it has posted a profit of just Rs 4 Cr against the equity capital of Rs 100 Cr which can hardly justify the IPO price (Rs 541).
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Keystone Real Consolidated Financials (in Cr) |
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| Period Ended |
Jun-22 |
Mar-22 | Mar-21 | Mar-20 |
Mar-19 |
| Months |
3 |
12 | 12 | 12 |
12 |
| Revenue |
169 |
1269 | 849 | 1211 |
2117 |
| Operating Profit |
5 |
179 | 114 | 136 |
302 |
| OPM% |
2.7 |
14.1 | 13.4 | 11.2 |
14.3 |
| Other Income |
7 |
34 | 48 | 57 |
26 |
| EBIDTA |
12 |
213 | 161 | 193 |
328 |
| EBIDTA % |
7.2 |
16.6 | 19.1 | 15.5 |
15.9 |
| Interest |
3 |
23 | 139 | 128 |
143 |
| Gain from Subsidiary |
0 |
-2 | 281 | 0 |
0 |
| Tax |
3 |
48 | 8 | 31 |
38 |
| Net Profit |
4 |
136 | 232 | 14 |
138 |
| Equity (Implied) |
114 |
114 | 100 | 100 |
100 |
| Reserves (Implied) |
1511 |
1511 | 701 | 327 |
304 |
| Borrowing |
1469 |
1558 | 1220 | 2514 |
1618 |
Valuation
Compared to the major real estate developers operating from Mumbai, the valuation of KRL’s IPO may look reasonable. Nevertheless, the company’s fluctuating past and unpredictable prospects make the IPO price too steep to sustain.
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HOW KEYSTONE COMPARES WITH SELECT LISTED PEERS |
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Financials |
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| (Amount in Cr) |
Keystone |
Macrotech | Godrej Prop | Oberoi Real |
Prestige |
| Market Cap |
6161 |
45951 | 35945 | 32288 |
18943 |
| Borrowing |
1558 |
11537 | 5170 | 2856 |
6513 |
| Fixed Assets |
8 |
1119 | 489 | 3497 |
4958 |
| Revenue |
1269 |
9233 | 1825 | 2694 |
6390 |
| Other Income |
34 |
346 | 761 | 58 |
211 |
| EBIDTA |
213 |
2471 | 894 | 1240 |
1744 |
| Interest |
23 |
680 | 167 | 86 |
555 |
| Net Profit |
138 |
1208 | 539 | 808 |
423 |
| Equity Cap |
114 |
482 | 139 | 364 |
401 |
| Reserves |
1511 |
11190 | 8536 | 10053 |
8694 |
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Stock Features |
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| Current Price (Rs) |
541 |
954 | 1293 | 888 |
473 |
| Face Value (Rs) |
10 |
10 | 5 | 10 |
10 |
| Book Value |
143 |
242 | 312 | 286 |
227 |
| Promoter Stake % |
86.7 |
82.2 | 58.4 | 67.7 |
65.5 |
| Debt/Equity |
1.0 |
1.0 | 0.6 | 0.3 |
0.7 |
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Profitability |
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| OPM % |
14.1 |
23 | 7.3 | 43.9 |
24 |
| Net Margin % |
10.6 |
12.6 | 20.9 | 29.3 |
6.4 |
| Cash EPS |
12.75 |
26.5 | 20.23 | 23.3 |
20.69 |
| Earnings Per Share |
12.44 |
24.94 | 19.46 | 22.21 |
8.94 |
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Return |
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| RONW % |
13.0 |
10.3 | 6.2 | 7.8 |
4.7 |
| ROCE % |
8.0 |
10.3 | 6.3 | 9.0 |
8.2 |
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Discounting |
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| Price/Earnings |
43.5 |
38.3 | 66.4 | 40.0 |
52.8 |
| Price/Cash EPS |
42.4 |
36.0 | 63.9 | 38.1 |
22.8 |
| Price/Book Value |
3.8 |
3.9 | 4.1 | 3.1 |
2.1 |
| Price/EBIDTA |
28.9 |
18.6 | 40.2 | 26.0 |
10.9 |
| Price/Revenue |
4.9 |
5.0 | 19.7 | 12.0 |
3.0 |
| Price/Fixed Assets |
786.1 |
41.1 | 73.5 | 9.2 |
3.8 |
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Distribution |
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| Dividend % |
0 |
0 | 0 | 30 |
15 |
| Yield % |
0 |
0 | 0 | 0.3 |
0.3 |
| Pay-out % |
0 |
0 | 0 | 13.5 |
14.2 |
Concerns
- Escalation of the reported feud between the adopted brothers Boman Irani and Tehmton Irani could jeopardize the share price prospects.