Macrotech Developers IPO subscribed 35% on second day

NEW DELHI: The Rs 2,500 crore Macrotech Developers (erstwhile Lodha Developers) initial public offering (IPO) was subscribed 35 per cent on second day of the bidding process on Thursday.

By 5:00 pm, the fresh issue attracted bids for 1,26,56,010 shares against the issue size of 3,64,18,219 shares.

The issue is being sold in Rs 483-486 price band. At the upper limit of this band, the IPO is asking for a trailing twelve month EV/sales multiple of 6.3 times, which Choice Broking said is at a discount to the peer average of 8.5 times.

This is the third attempt by Macrotech to launch an IPO. The company had initially filed draft red herring prospectus in Sep 2009 and then again in Apr 2018. At both the times, the planned public issue was shelved amid markturmoil.

Choice Broking said that the real estate sector is witnessing significant consolidation, especially after the NBFC crisis.

“Dominant players like Macrotech are likely to benefit in the medium to long term. However, the resurgence of the Covid-19 infection and discontinuation of stamp duty waiver on property registration would dent the sentiment in the near term. Thus considering the above observations, we assign a “Subscribe for Long Term” rating for the issue,” it said.

Among the key concerns, the company had a net debt of Rs 16,700 crore as of December 31 and any downturn in the realty sector may affect the company significantly. Besides, the company’s product portfolio is too concentrated on the residential market of MMR region; any change in rule and regulation by authority may affect the company significantly. Lastly, the company has not been able to generate significant positive cash flow for shareholders in the last three years and may continue to have negative cash flows in the near future, said analysts.

On the flip side, “The company has a strong brand in affordable and mid income housing projects, but is not able to deliver the growth in sales and free cash flow in the last couple of years. The company has posted sales degrowth of 68 per cent in 9MFY21 and reported a loss of Rs 265 crore. Given weak revenue growth in the past and leverage balance sheet, we assign a “NEUTRAL” rating to the IPO,” said Angel Broking.

Reliance Securities is positive on the issue. The IPO, it said, is valued at 26.3 times FY20 earnings and 4.8 times FY20 book value, which appear to be reasonably priced vis-a-vis its peers like Godrej Properties and DLF.

“The company’s plan to reduce net debt to Rs 12,700 crore in the coming quarters negates concern over high leveraging. Further, strong project portfolio and monetisation of huge land banks offer comfort. Moreover, its return ratio looks to be superior compared to peers. Hence, we recommend subscribe to the issue,” the brokerage said.