Macrotech Developers Ltd Information Note

Macrotech Developers Ltd
IPO
by Nikita Bhoota 08/04/2021

Macrotech Developers Ltd IPO

Issue Opens: April 07, 2021
Issue Closes: April 09, 2021
Price Band: ₹483-486#
Issue Size: ₹2,500 cr#
Bid lot: 30 Equity shares
Issue Type: 100% Book building

Macrotech Developers Ltd Shareholding Pattern

% Shareholding Pre IPO
Promoter and Promoter Group 62
Public 38

Company Background
Macrotech Developers Ltd. (MDL) is one of the largest real estate developers in India, by residential sales value for the period FY14 to FY20 (Source: Anarock Report). Its core business is residential real estate developments with a focus on affordable and mid-income housing and currently has residential projects in the Mumbai Metropolitan Region (MMR) and Pune. MDL, in 2019, forayed into the development of logistics and industrial parks and entered into a JV with ESR Mumbai 3 Pte. MDL also develops commercial real estate, including as part of mixed-use developments in and around its core residential projects. MDL has strong focus on de-risking projects and improving return on investments with fast turnaround time from acquisition to launch to completion. As of December 31, 2020, MDL has 91 completed projects comprising approximately 77.22 mn sq. ft. of Developable Area, has 36 ongoing projects comprising approximately 28.78 mn sq. ft. of Developable Area and has 18 planned projects comprising approximately 45.08 mn sq. ft. of Developable Area across different segments like affordable and mid-income housing, premium and luxury housing, office space and retail space. Apart from the above, MDL as of December 31, 2020, has land reserves of approximately 3,803 acres for future development in the MMR, with the potential to develop approximately 322 mn sq. ft. of Developable Area.

Object of the Offer
The offer comprises entirely of Fresh Issue of 5.14 cr shares aggregating to ₹2,500 cr (at upper end of the price band). Proceeds from the fresh issue are proposed to be utilized towards

1. ~₹1,500 cr for reduction of the aggregate outstanding borrowings of MDL on a consolidated basis,

2. ₹375 cr for acquisition of land or land development rights and

3. Balance for general corporate purposes.


Key Financials and Operational Metrics

Particulars FY18 FY19 FY20 9MFY20 9MFY21
Sales (Value in ₹Cr) 8,130 7,163 6,570 -- 3,351
Sales (Developable Area in mn sq. ft.) 7.4 6.37 6.18 -- 3.3
Sales (number of units) 6,844 5,975 5,912 -- 3,163
Gross Collections (₹ Cr) 8,564 9,065 8,190 -- 2,893
Completed Developable Area (mn sq. ft.) 13.75 6.39 15.65 -- 0
Revenue from Operations (₹ Cr) 13,527 11,907 9,577 7,463.00 2,915.00
Adjusted EBITDA (₹Cr) 768 2,414 2,925 3,684 4,039
Adjusted EBITDAM (%) 29.9 30.9 30.5 32 26
Restated PAT (₹ Cr) 1,784 1,672 1,206 884 -264
PAT Margin (%) 13.2 14 12.6 11.8 -9.1
Return on Net Worth (%) 101.1 48.3 17.8 15 -7

Source: RHP

Description of Business
Broadly, MDL’s business can be classified into the following:

  • Residential portfolio (Affordable and mid-income housing projects; and Premium and luxury housing projects)
  • Logistics and industrial park portfolio
  • Commercial portfolio (Office projects; and Retail projects).


Strengths:

  • One of India’s largest residential real estate developers with a leadership position in the attractive MMR market
    MDL’s sales from India Operations for FY20 and 9MFY21 were ₹6,570 cr and ₹3,351 cr, respectively. Its Gross Collections from India Operations for FY20 and 9MFY21 were ₹8,190 cr and ₹2,893 cr, respectively. The MMR is considered the most attractive real estate market in the Top Seven Indian Markets, having the largest share of supply and absorption, as well as the highest average base selling price, of residential units from 2016 to 2020, catering to a wide spectrum of income and demography (Source: Anarock Report). MDL believes that the MMR has significant depth of demand for real estate developments across price points and that the MMR real estate market has high barriers to entry due to limited land availability, high prices of land and knowledge of the regulatory and approval processes required for developing a project. As a result of MDL’s strong brand, existing land reserves and industry knowledge & regulatory environment know-how in the MMR, MDL has attained a leadership position in the South Central Mumbai, Thane and the Extended Eastern Suburbs micro-markets of the MMR, with the largest share of supply (by units), absorption (by value) and completion (by area) of residential developments, among the five largest developers in the respective micro-market, from 2015 to 2020 (Source: Anarock Report). As per Anarock report, MDL has a strong presence in the Extended Western Suburb micro-market of the MMR, with the 2nd largest share of absorption (by value) and the 5th largest share of supply (of units) of residential developments, among the five largest developers in the respective micro-market, from 2015 to 2020. In addition, MDL has several planned projects in the MMR, which they believe will enable them to have a robust launch pipeline over the next few years.
  • Well-established brand with ability to sell at premium pricing and throughout the construction phase
    The company believes that its strong and recognizable brand is a key attribute in the industry, since it increases customer confidence, influences buying decision and helps target premium pricing for products. MDL focuses on branded realty, with a belief in developing and marketing its real estate projects as “branded products”. MDL’s brands include “CASA by Lodha”, “Crown –Lodha Quality Homes”, and “Lodha” for affordable and mid-income housing projects, the “Lodha” and “Lodha Luxury” brands for premium and luxury housing projects and “iThink”, “Lodha Excelus” and “Lodha Supremus” for its office spaces. The company believes that the strength of its brand and its association with trust, quality and reliability is primarily driven by its track record of delivering quality products, with modern amenities and innovative design elements and landscapes, largely within committed timelines. MDL has also increased its brand recall through celebrity endorsements and by collaborating with luxury designers. MDL typically aims to sell over 80% of the Saleable Area of a project during the construction phase. MDL leverages its brand value and focuses on selling sizeable percentage of units within one year from the launch of a project as well as prior to the receipt of the occupation certificate, which assists them in generating operating cash flows during the construction phase. Such sales help reduce the need for construction finance and enable them to achieve optimal returns on their projects. The company also believes that they have been able to leverage their brand presence, customer confidence, track record of successfully delivering projects and superior construction quality to increase sales volumes and also command premium pricing for its products vis-à-vis other projects in the respective micro-markets.
  • Highly diversified portfolio across price points and micro-markets in the MMR with a focus on affordable and mid-income housing
    MDL has a diversified portfolio of residential developments, spread across price points and micro-markets in the MMR. Its developments cater to wide spectrum of economic and demographic segments, from luxury residences in South Mumbai to large, integrated townships in the extended suburbs offering affordable homes. Over the years, MDL has established a strong reputation and track record in affordable and mid-income as well as premium housing projects. In affordable and mid-income housing, MDL has introduced one or more high-quality amenities, such as a large swimming pool, a private movie theatre, a cricket ground, a football stadium and an indoor swimming pool. MDL has developed prominent projects in the premium and luxury housing category in their respective locations as well. The company believes that its ability to design a high-quality and differentiated product and positioning it to the target segment through appropriate marketing and branding strategy, has enabled MDL to deliver several prominent projects in the premium and luxury housing category. Additionally, MDL believes that significant portfolio of completed and near-complete inventory in its premium and luxury housing, coupled with limited land availability in the South Central Mumbai micro-market where their premium and luxury housing projects are located, will drive sales volumes in this segment for MDL.
  • Unique ability to develop townships and generate annuity-like cash flows from them
    MDL has the ability to identify land, acquire it at competitive cost, aggregate it from several landowners and design a master plan to develop township projects. Upon development of the townships, Government agencies develop the surrounding infrastructure such as enhancing road and railway connectivity to improve the standard of living for the residents of the townships. MDL is currently developing large townships located at Palava (Navi Mumbai, Dombivali Region) and Upper Thane under affordable and mid-income housing projects. The company believes that its ability to develop such townships, coupled with the strength of its brand and innovative sales and marketing strategies will help them drive sales volumes and generate recurring operating cash flows.  As of December 31, 2020, they also have land reserves of 3,303 acres at Palava and 500 acres at Upper Thane, and total Saleable Area of 37.6 mn sq. ft and 5.6 mn sq. ft with respect to its completed and on-going projects at Palava and Upper Thane, respectively.

Key Risks:

  • MDL has substantial amount of debt (₹18,662 cr of aggregate outstanding borrowings on a consolidated basis as of December 31, 2020), which could affect its ability to obtain future financing or pursue growth strategy. The company also has contingent liabilities aggregating to ₹782 cr as of December 31, 2020.
  • COVID-19 has caused construction delays due to varying factors, caused a material decline in general business activity, impacted lease commitments for commercial developments, etc. The extent to which COVID-19 may affect MDL’s business and operations in the future is uncertain and cannot be predicted. 
  • There are material outstanding legal proceedings involving the Company, Subsidiaries, Associates, Directors, Promoters and Group Companies. These proceedings are pending at different levels of adjudication before various courts, tribunals, enquiry officers and appellate tribunals.


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