Lodha developers is looking to raise 2500 Cr from the secondary market & this isn’t the first time.
In 2009, Lodha filed for an IPO to raise 2800 Cr. Later the plan was shelved because of the Global financial crisis.
In 2018, it again filed DRHP to raise 5500 Cr. This time it was IL&FS.
Will it be third time lucky? Should you subscribe to the IPO?
Short answer: No. Too many things should go right for Lodha to get back on the growth track. It has a huge debt pile of $2.5B. In the last 2Y, the finance costs are higher than the EBITDA. Credit rating agencies have downgraded the company’s rating to Negative. The company has 19.1% of unsold inventory. Hence we recommend an AVOID for this IPO.
Macrotech Developers (erstwhile Lodha) was incorporated in 1995 by Mangal Prabhat Lodha. It is one of the largest real estate players in terms of sales. The company’s development activities are focused in Mumbai Metropolitan Region (MMR) & Pune.
As of Dec 2020,
Completed 91 projects of 77.22 million square feet (msft) of developable area
Ongoing 36 projects of 28.78 msft
Planned 18 projects of 45.08 msft
Landbank of 3,803 Cr with a potential 322 msft
In 2019, the company forayed into development of logistics & industrial parks. It entered a JV with ESR Mumbai 3 Pte. As part of the JV, it has an ongoing 290 acres & planned development of 540 acres as of Dec 2020.
Utilisation of IPO proceeds:
The company is looking to bring down the debt by 1500 Cr
375 Cr will be used towards acquiring new land parcels or development rights
The remaining proceeds will be used for general corporate purposes
5-year annualised Revenue growth of 8.6% in the last 5Y to 12,433 Cr as of FY20. For 9MFY21, they clocked revenue of 2915 Cr.
5-year annualised EBITDA growth of 3.7%. Margins have fallen from 25% to 15% during the same time period.
PAT remained flat at 745 Cr for FY20. As of 9MFY21, reported a loss of 275 Cr.
Lodha has a consolidated debt of 18,621 Cr as of Dec 2020. The finance costs of the company stands at 1893.6 Cr Cr.
In the last 2 years, the interest cost of the company is higher than EBITDA.
The company availed a moratorium of 55.07% of their outstanding borrowings.
Brickworks downgraded the credit rating from Stable to Negative. Indian Ratings moved the it from Positive to Stable.
Excluding the huge debt, Lodha’s numbers are in-line with its peers. The inventory turnover is better than Sunteck & DLF. Asset turnover is above industry average. The ROE looks boosted because of high debt levels.
*click to enlarge
What we like?
After listing, it will be the largest real estate developer in terms of sales (FY20).
Strong brand value in Luxury segment.
What we don’t like?
The company is focused on MMR region. The entire land bank of 3800 acres is spread across Upper Thane & Dombivali areas in Mumbai.
It has a contingent liability of 782 Cr on its balance sheet.
The company guided for a net debt free status in the past, which it couldn’t able to achieve.
The company has an unsold inventory of 20.3 msft, which is 19.1% of completed & ongoing projects in terms of msft.
View & Valuation
Post IPO, the promoters continue to hold 89% stake. They have to bring down the stake to 75% in the next 3 years. This will be an overhang on the stock.
The company is looking at a valuation of 21,178 Cr. The Enterprise value of the company will be ~40k Cr. EV/EBITDA is at 20 times & PE of 28 times as of FY20.
The valuations are not stretched, but the balance sheet is.
This is not a unique IPO. There are better alternatives available in real estate sector. Hence, we recommend an AVOID to the IPO.