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Salient features of the IPO:

* Macrotech Developers Ltd. (Macrotech) formerly known as Lodha Developers Ltd., is planning to raise up to Rs. 2,500cr through an IPO, which opens on 7th Apr. and closes on 9th Apr. 2021. The price band is Rs. 483 - 486 per share.

* The issue comprises of only fresh issue. Of the net proceeds from the fresh issue, Rs. 1,500cr will be utilized to reduce the outstanding borrowings, Rs. 375cr will be used for land acquisition & land development rights. Residual funds will be used for general corporate purposes.

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

Key competitive strengths:

* One of India’s largest residential real estate developers with a leadership position in the attractive MMR market

* Well-established brand with ability to sell at premium pricing and throughout the construction phase

* Proven end-to-end execution capabilities with continuous innovation and ability to deliver projects at competitive cost

* Strong focus on sustainable development

* Highly diversified portfolio across price points and micro-markets in the MMR with a focus on affordable and mid-income housing

* Significant inventory of completed, ready-to-move units

* Unique ability to develop townships and generate recurring operating cash flows from them

* Innovative marketing and sales strategies

* High quality management team

Risk and concerns:

* Re-emergence of the Covid-19 infection

* Unfavorable business environment and difficulty/delay in asset monetization

* Rise in interest rate

* Inability to maintain profitability

* Unfavorable government policies or discontinuation of sops for the buyers

* Competition

Peer comparison and valuation:

At higher price band of Rs. 486, the company is demanding an TTM EV/Sales multiple of 6.3x, which is at discount to the peer average of 8.5x. Thus, the issue seems to be attractively priced.

Below are a few key observations of the issue:

* Real estate market contributed around 6% to India’s GDP in 2017 and is likely to contribute about 13% to the GDP by 2025. Consequently, the domestic real estate market, which has grown by 10% CAGR over 2008-17 to USD 120bn in 2017 is expected to further grow at 17.7% CAGR to reach USD 1tn by 2030.

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