Transfin.
HomeNewsGuidesReadsPodcastsTRANSFIN. EOD

    Macrotech Developers IPO: All You Need to Know

    Editor, TRANSFIN.
    Apr 8, 2021 8:00 AM 5 min read

    Macrotech, formerly known as Lodha Developers, is trying its luck a third time with an IPO.

    The real estate major launched its ₹2,500cr ($341.28m) share sale on April 7th. Anchor investors meanwhile could buy shares a day ahead.

    Macrotech is likely to utilise most of the net proceeds from the issue towards reducing its net debt by 24% to ₹12,700cr ($1.73bn). Land acquisition and developmental rights aggregating up to ₹375cr ($51.2m) are also on the table.

    About the Company

    Founded by businessman and BJP MLA Mangal Prabhat Lodha in 1980, the Mumbai-based Lodha Group is one of India's largest real estate players by sales bookings.

    Formerly called Lodha Developers and rechristened to Macrotech Developers in 2019, it develops real estate in the residential and commercial sectors across the Mumbai Metropolitan Region (MMR), Pune and London. It mainly focuses on affordable and mid-income housing projects but has also dipped its feet in logistics and industrial parks.

    FYI: In September 2013, Lodha Group partnered with Donald Trump for the development of Trump Tower Mumbai, an 800-feet-tall, 77-storey residential tower at Lower Parel.

    The company attempted a listing twice before, both of which won SEBI’s approval but were later abandoned. In 2010, it shelved its plans on account of the Great Recession. And in 2018, it gave up on its plan to raise ₹5,500cr ($750.8m), again due to unfavourable market conditions.

    Which brings us to...

     

    Market Metrics

    India’s real estate market has faced its share of challenges. Despite having grown at a CAGR of c. 10% between 2008 and 2017 and despite being expected to be worth $1trn by 2030 and command 13% of the country’s GDP by 2025, the sector has faltered and stagnated of late.

    In 2018, defaults and mayhem among shadow lenders sparked a crippling credit crisis that severely hurt property developers. The parallel economic slowdown dragged down the real estate sector, along with the rest of the economy.

    COVID-19 affected Indian real estate in a rather unique way. On the one hand, sales inadvertently plunged YoY - for housing projects, this number was 75%! But on the other hand, near-term trends are expected to be more positive, since the coronavirus has likely rekindled consumer desire in owning a house rather than renting one. Not only due to social distancing concerns, but also due to a growing work-from-home culture.

    In recent months, the sector began to get back back on its feet. Many measures were implemented to rekindle demand, including conventional offers like cash discounts, lower interest rates, GST and stamp duty waivers and not-so-conventional ones like property exchange schemes. The pandemic also brought about new trends with the rise of proptech and REITs.

    Having said that, obstacles remain when it comes to availability of labour, raw material supply chains, liquidity, availability of loans, and unfinished or delayed projects. Moreover, the recent resurgence of coronavirus cases suggests that the worst is yet to come for the Indian economy..

    Therefore, Macrotech must be in an unpleasant state of déjà vu as it aims to list again during less-than-ideal conditions. 

     

    Fast Stats

    Macrotech’s IPO (link to RHP) would be the first of FY22 in the country and the biggest by an Indian developer since DLF Ltd. Went public in 2007.

    • The issue will be open for subscription from April 7th to April 9th at a face value of ₹10 ($0.14) for the 51,440,328 equity shares. The listing date is April 22nd.
    • The price band is ₹483-486 ($6.63) per share.
    • At the upper end of the price band, the company is valued at ₹21,740cr ($2.97bn).
    • The listing will be on NSE and BSE.
    • The promoters’ holding post-issue would reduce from 100% to 89%. 

     

    Opportunities

    • The Lodha Group is one the country’s largest and most well-known property developers, particularly in the MMR.
    • Despite past hiccups, it has been on a road to recovery. Moody’s changed its outlook on Macrotech’s ratings to stable from negative in November.
    • It has slashed its exposure to the premium segment (homes priced above ₹4cr ($546,049), about half of which have been unsold since 2013 in the MMR). Nearly 60% of its portfolio is now in the affordable and mid-income segments. 
    • Developers in the MMR are enjoying a swift recovery in demand thanks to a temporary reduction in stamp duty. Sales figures for the December quarter were particularly robust. (But stamp duty rates will climb back after March, post which demand could return to being sluggish.)

     

    Risks

    • The company's financials aren't particularly strong. Revenue, sales and profits have declined in recent months. Between FY18 and FY20, revenue and net profit CAGR have been -5.34% and -36.5% respectively.
    • Debt is a major point of concern. The company almost defaulted a year ago on its dollar bonds. As of December 31st, it had ₹18,662cr ($2.55bn) of aggregate outstanding borrowings on a consolidated basis. The debt-to-equity ratio is a high 3.87x. 
    • Unhealthy amounts of leverage will also affect refinancing prospects.
    • The company has an unsold inventory problem. As of December 31st, it had unsold inventory in residential projects of approximately 14.8 million square feet and approximately 5.5 million square feet of ready-to-move unsold inventory of residential projects.
    • 35 of the firm’s 36 ongoing projects are in the MMR, which also has 100% of its land reserves for future development. This geographic concentration of risk makes it susceptible to the rules of a single state government in a region infamous for sky-high property prices and, of late, sky-high coronavirus cases.
    • The future trajectory of the pandemic, which will determine the prospects of the real estate sector and thus Macrotech's performance, is difficult to predict.
    • The company operates in a sector that enjoys a lot of GST and tax benefits. The Government - especially now when it’s fiscally strained - could amend these policies at any time.

    Clearly, Macrotech faces a double-whammy of brow-furrowing macroeconomic conditions and lip-pursing financial numbers. Some investors may be drawn to its established brand name, clout and potential for recovery. Others may be disenchanted by its high debt and negative cash flows.

    Macrotech must be eagerly hoping that “third time’s the charm” is not merely an expression but a maxim!

    PS: Read up on some other notable IPOs that have hit the market in recent weeks - Barbeque Nation, Nazara, Kalyan Jewellers, Easy Trip, MTAR, RailTel, IRFC.

    FIN.
     

    The cut-throat world of Business and Finance means that there is fresh News everyday. But don't worry, we got you. Subscribe to TRANSFIN. E-O-D and get commentaries like the one above straight to your inbox.