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Shriram Properties IPO  Fundamental Analysis

Key Business Highlights

  • Incorporated in the year 2000 at Chennai, Shriram properties commenced operations in Bengaluru and have since expanded its presence in other cities in South India, i.e., Chennai, Coimbatore and Visakhapatnam. The company also has a presence in Kolkata in East India; however, Bengaluru and Chennai remain the two key markets.
  • The Issuer is primarily focused on the mid-market and affordable, housing categories. The Issuer is amongst the top five residential real estate companies in South India in terms of a number of units launched between the calendar years 2012 and the third quarter of 2021 across Tier 1 cities of South India including Bengaluru, Chennai and Hyderabad. The company is also present in the mid-market premium and luxury housing categories as well as commercial and office space categories in its core markets.
  • The Issuer is part of the Shriram Group, which is a prominent business group with four decades of operating history in India and a well-recognized brand in the retail financial services sector and several other industries. Relationship with the Shriram Group benefits the Issuer with strong brand recall and trust from homebuyers, lenders, financial investors, landowners, development partners, contractors and other stakeholders.
  • As of September 30, 2021, the Issuer has 29 completed Projects, representing 16.76 msq (million square feet) of Saleable Area, out of which 24 have a presence in Bengaluru and Chennai accounting for 90.56% of saleable area. Further, 83.69% of the total saleable area for completed projects was in the mid-market category and affordable housing category and the remainder in the commercial and office space and luxury housing categories, as of September 30, 2021.
  • Additionally, plotted developments accounted for 33.41% and 34.67% of sales volumes during H1FY22 and FY21, respectively.
  • The real estate portfolio consists of 26 ongoing Projects, five Projects under Development and four forthcoming Projects, which account for 56.28%, 17.71% and 26.01% of our total estimated Saleable Area, respectively, as of September 30, 2021.
  • The Issuer is transitioning from a real estate development model (DM) to a combination of real estate development and real estate services-based business model, with a shift towards an asset-light business strategy. The Issuer received the DM Fee income since FY19 and derived 20.81% and 22.77% of total revenue from DM fee income during H1FY22 and FY21, respectively.

Financial Review of Shriram Properties

The financial performance of the Issuer is showing a declining trend since the last two fiscals. The total revenues of Shriram Properties reduced by 21% for FY21 against the revenues of FY20. In FY20, revenues declined by 13% when compared to FY19. The Issuer has been posting net losses after tax for Q1FY22 and for last two fiscals. However, the company has posted positive EBITDA margins as can be seen in the table.

Debt equity ratio is at a higher side of 1.41x as at the end of H1FY22. Return on net worth is -7.81%, -8.14%, -9.55%, and 4.98% for 6MFY22, FY21, FY20 and FY19 respectively.

Table 1 - Financials and Ratios (Amount in Rs Crore)
Title H1FY22 FY2021 FY2020 FY2019
Total Revenue 155.15 501.31 631.84 723.78
Other Income 36.98 69.81 59.88 73.65
PAT -60.03 -68.18 -86.39 48.79
EBITDA 37.08 121.06 90.41 79.93
Total Assets 3293.36 3299.49 3417.03 3365.63
Cash generated from operations 54.99 147.59 129.12 -179.23
EBITDA Margin 23.90% 24.15% 14.31% 11.04%
Net Margin -38.69% -13.60% -13.67% 6.74%

Valuation and Peer Comparison

The P/E of the Issuer is not ascertainable due to the negative EPS. P/BV is 2.29 with NAV of Rs 51.53 as at the end of H1FY22 calculated at the upper price band of Rs 118 per share. Sobha Ltd, Sunteck Realty, Brigade Enterprises, Prestige Estates, Godrej properties and Oberoi Realty are the peers of the Issuer as per the RHP.

Table 2 - Listed Peer Comparison
Particulars Sobha Ltd. Prestige Estates Brigade Ent. Godrej Properties Oberoi Realty Sunteck Realty Shriram
Face Value per share 10 10 10 5 10 1 10
Total Income for FY21 (INR Crores) 2190.4 7501.8 2010.4 1333.09 2090.59 630.84 501.31
EPS  (yr ended FY21) 6.57 36.32 -2.24 -7.48 20.33 2.98 -4.6
NAV per share 255.97 166.52 111.32 299.32 257.68 19.75 56.44
Return on net worth 2.59% 23.31% NA NA 7.91% 1.35% NA
P/E 133.13 12.86 NA NA 45.29 160.64 NA

The Issue Snapshot

Shriram Properties Limited IPO opens on 8th Dec with an Issue size of Rs 600 crore (fresh issue of Rs 250 crore). The Issue has a price band of Rs 113-118 per share, has a 10% retail quota and the minimum application amount is Rs 14,750. The issue closes on 10th Dec and is expected to list on 20th Dec 2021. The proceeds would be used towards repayment of certain borrowings (Rs 200 crore).

Conclusion and Investment Strategy

The real estate sector has been affected by the pandemic and the lock-down impacted both residential and commercial sectors. Though the residential market is on a recovery path but the situations are still challenging. The Issuer has a weak financial profile with losses after tax for the last two fiscals and H1FY22. Also the Issuer’s operations are region specific and concentrated in South India. Considering these factors one may Avoid this IPO.

Reviewer recommends Avoid to the issue.

Review By CA Priyanka Choudhary on 3rd Dec 2021

Review Author

About CA Priyanka Choudhary

CA Priyanka Choudhary, a freelance chartered accountant

Priyanka Choudhary Jain is a Chartered Accountant and an experienced credit analyst. She has worked with CRISIL as Senior Credit Analyst on ratings assignments including business and financial analysis in Corporates as well as the Public Finance Sector.

Email: [email protected]

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets are subject to unpredictable market related risks. Above information is based on RHP and other documents available as of date coupled with market perception. Author has no plans to invest in this offer.

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