Shriram Properties IPO: Another loss making firm seeks D-St entry; what should you do?

NEW DELHI: Initial reviews are divided on the primary market issue of Shriram Properties, which will open for bidding on Wednesday and run through Friday.

The firm has reduced its offer for sale size to Rs 350 crore from Rs 550 crore earlier. Now, the IPO size will be Rs 600 crore against Rs 800 crore earlier. The price band of the initial public offering (IPO) has been fixed at Rs 113-118 a share.

The issue is termed as relatively pricey against its peers, which has made many analysts cautious. Moreover, it has consistently delivered losses for the last two financial years and in the six month-ended September. The previous time it delivered a profit was in FY19.

Analysts at Marwadi Financial Services say considering FY21 Ebitda of Rs 512.44 million on a post-issue basis, the company is going to list at EV/Ebitda of 51.84 with a market cap of Rs 2,001 crore. Its peers Sobha and Oberoi Realty are trading at EV/Ebitda of 15.60 and 33, respectively.

“We assign an avoid rating to this IPO as valuation is expensive as compared to its peers,” say Saurabh Joshi and Kaushal Thakkar of Marwadi Financial Services.

Shriram Properties is a south India-based company primarily focused on the mid-market and affordable housing categories. As on September 30, 2021, the company has completed 29 projects, representing 16.76 million square feet of saleable area, mostly in Bengaluru and Chennai.

This public issue comprises fresh issuance of equity shares worth Rs 250 crore and an offer for sale (OFS) of Rs 350 crore. As a part of the OFS, Omega TC Sabre Holdings Pte, Tata Capital Financial Services, TPG Asia SF V Pte and Wsi/Wsqi V (XXXII) Mauritius Investors will sell shares.

The issue includes a reservation of equity shares worth Rs 3 crore for the company's employees who will receive those shares at a discount of Rs 11 a share to the final issue price. The company plans to utilise the net proceeds from the fresh issue for repayment and/ or pre-payment of debt and general corporate purposes.

About 75 per cent of the issue size has been reserved for qualified institutional buyers (QIBs), 15 per cent for non-institutional investors and the remaining 10 per cent for retail investors. Investors can bid for a minimum of 125 equity shares and in multiples thereof.

However, there are some analysts who say the company’s growth prospects make an investment case. "We are constructive on the company's long term growth prospects given the current positive industry growth trends and Shriram's strong brand presence and execution track record. However, improvement in financials would remain a key monitorable for the company," said analysts at Religare Broking.

Yash Gupta, Equity Research Analyst, Angel One also said he was positive on the IPO.