Shriram Properties IPO subscribed by 4.6 times at the end of Day 3: Read our review

**Shriram Properties Limited IPO which opened for subscription on 8th December, got subscribed by 4.60 times as at the last day of the issue. The issue has seen very strong demand from retail investors so far. The company was looking to raise up to Rs 600 crore through the public issue. Here are the details:** ## About the Shriram Properties Limited - **Shriram Properties Limited IPO Date:** 8 December - 10 December 2021 - **Shriram Properties Limited IPO Price band:** Rs 113 - Rs 118 - **Issue Size:** Rs 600 crore (Fresh issue aggregating up to Rs 250 crore and offer for sale aggregating up to Rs 350 crore) - **Reservation**: QIB 75%, Retail - 10%, NII 15% - **Employee Reservation**: Rs 11 - **Minimum Investment**: Rs 14,750 - **Bid lot**: 125 shares, and in multiples of 125 shares ## Objectives of the issue The net proceeds from the IPO will be utilized for the following purposes : Repayment and/or pre-payment, in full or part, of certain borrowings availed by the company and its subsidiaries, Global Entropolis, Shriprop Structures, and Bengal Shriram. General corporate purposes, subject to applicable laws. ## About Shriram Properties - It is one of the leading residential real estate development companies in South India. - Shriram Properties focuses on the affordable and mid-market housing segment. They have a presence in the mid-market premium and luxury housing categories. They are also in commercial and office space categories. - The key markets for the company are Chennai and Bengaluru. They also operate in Coimbatore, Kolkata, and Visakhapatnam. - The company has completed 29 projects, out of which 24 are in the cities of Bengaluru and Chennai as of 30 September 2021. - The company has a total portfolio of 35 projects in ongoing, projects under development, and forthcoming projects, stages, aggregating to 46.72 million square feet of estimated saleable area. ## Shriram Properties Financials  - Shriram Properties has posted revenue of Rs 723.37 crore, Rs 631.84 crore, and Rs 501.30 crore in FY19, FY20, and FY21, respectively. - The company last posted a profit of Rs 48.79 crore in FY19, and in the last two financial years, the company has reported losses. The loss for FY20 and FY21 is 86.39 crore and Rs 68.18 crore, respectively. - They have total outstanding borrowings of Rs 695.10 crore as of September 30, 2021. - The pre-sales volumes grew at a CAGR of 22.61% between the financial years 2017 and 2021. - The sales volumes and gross collections from residential projects declined from 3.25 MSF and Rs 1182.60 crore for FY20 to 3.00 MSF and Rs 939.36 crore FY21 and was 1.56 MSF and Rs 577.66 crore for the six months ended September 30, 2021, respectively. - The midmarket category and affordable housing category accounted for an aggregate of 71.48% of its total estimated Saleable Area. ## Shriram Properties Listed Peers The company will face competition from a number of listed peers. The listed peers of Shriram Properties include Sobha Limited, Prestige Estates Projects, Brigade Enterprises, Godrej Properties, Oberoi Realty, and Sunteck Realty Limited.  - Shriram properties has the lowest revenue among the bunch and is loss making in FY21. However, FY21 was a tough year for the real estate industry as seen from 2 more loss making companies. Real estate has been making a rebound in FY22. The data for RoNW and PE is unavailable as the companies have reported negative earnings. - The Earning Per Share (EPS) of Shriram Properties is negative, the list is topped by Prestige Estates with an EPS of 36.32. The second on the list is Oberoi Realty with an EPS of 20.33. - The RoNW is also highest for Prestige Estates at 23.31%, the second-best on the list is Oberoi Realty with RoNW of 7.91%. ## Shriram Properties USP - **Part of Shriram Group** - Shriram Group 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. The group is funded by marquee global and domestic financial investors across several of its businesses. As a result, the company benefits from the strategic inputs and support of reputed global and domestic financial investors. It has helped them in strengthening business operations, management systems, and overall governance practices. - **Leading Residential Real Estate Development company in South India** - Shriram Properties is one of the leading residential real estate development companies in South India. They primarily focus on the mid-market and affordable housing categories. They are among the top five residential real estate companies in South India in terms of the 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. - **Established Strategic Relationships** - The company has established relationships with domestic as well as international financial investors, from whom they have been able to procure financial investments for their projects. As a result of its strategy to enter into joint-development agreements and joint ventures, it can reduce up-front costs for land acquisition while leveraging its brand name and the experience of business development to construct, develop, and market projects in an efficient manner. - **Scalable and Asset Light Business Model** - The company's business model relies on the strength of its brand, project execution, and management capabilities as well as well-established relationships with landowners, development partners, financial investors, architects, and contractors. The asset-light business model will result in efficient utilization of capital resulting in lower debt and regular fee income, allowing the company to have a higher return on capital employed. ## Shriram Properties Growth Potential - **Focus on Mid-Market and Affordable Housing Categories** - They plan to continue to strengthen its reputation and track record in the mid-market and affordable housing categories, in order to deliver cost-effective housing solutions to customers. They plan to leverage their existing market position, competitive strengths, and understanding of customer preferences to deepen penetration in the mid-market and affordable housing category. - **Continued Focus on Key Cities in South India** - The company plans to continue to focus on key cities in which they have a presence, such as Bengaluru and Chennai, where they believe they have established a strong presence and developed in-depth local knowledge and relationships. - **Strengthen Presence in the Plotted Development Category** - The company ventured into plotted development under the brand extension “Shriram Earth” in December 2018. They decided to venture into this vertical as its core markets present a significant new opportunity in this area and thus focused on building a mix of projects with a quick turnaround time and faster returns. - **Continued Focus on Relationships with Financial Investors** - They plan to continue to enter into arrangements with financial investors aimed at leveraging the strength of its current business model and existing strong relationships with reputed financial investors. As part of this strategy, they have entered into strategic relationships with financial investors for the development of investment platforms arrangements, which include a capital commitment towards projects that meet specified and agreed-upon criteria. ## Shriram Properties Risks - **Geographically concentrated in South India** - The real estate development activities are geographically concentrated in the cities of Bengaluru, Chennai, Visakhapatnam, and Coimbatore, which are located in South India. They are exposed to risks from economic, regulatory, and other risks like natural disasters in South India. It may hurt its business, results of operations, cash flows, and financial condition. - **Significant amount of debt** - The company has a significant amount of debt. They may not be successful in obtaining additional funds in a timely manner, on favorable terms, or at all. Further, increased interest rates, lack of availability of cost-effective funds, and inability to refinance its existing indebtedness, if required, may increase the cost of indebtedness. Under all such conditions, the company's finances will be impacted. - **Subsidiaries have unsecured loans** - The company and some of its subsidiaries have currently availed unsecured loans which may be recalled by the lenders at any time. If any lender seeks repayment of any such loan, the company would need to find alternative sources of financing, which may not be available on commercially reasonable terms, or at all. Such demand by the lenders may affect business and cash flows. ## INDmoney Analysis: Shriram IPO Review Shriram Properties' total revenues decreased by 21% on-year to Rs 501 crore in FY21, impacted by the ongoing pandemic. Due to COVID-19 pandemic, construction activity had been stalled during the year. The company has also posted losses in the last 2 years. Due to its negative earnings, it is not possible to value the company on a PE ratio basis. At the higher end of the price band, Shriram Properties IPO is priced at a Price to Book Value of ~2.29 times (Apr-Sep 21). This seems to be in-line with listed peer Prestige Estates (2.61 times), but lower than Oberoi Realty (3.10 times), DLF (2.63 times), Sobha (3.25 times), Godrej Properties (6.51 times). When compared on an EV/ EBITDA basis, Shriram Properties seems to be aggressively priced as compared to peers, due to lower earnings in the previous years. Notably, Prestige, Sobha and Oberai have higher return ratios than Shriram Properties. Given a drop in revenues, negative earnings, uncertain outlook due to the ongoing pandemic, and high valuations, we remain “**Neutral**” on the prospects of the issue. ## Subscription Status (End of Day 3) (10th December 2021) | Category | Subscription (times) | |-----------|----------------------| | QIB | 1.85 | | NII | 4.83 | | Retail | 12.72 | | Employee | 1.24 | | Total | 4.60 |