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Keystone Realtors Ltd : Subscribe with Caution

Salient features of the IPO:

* Keystone Realtors Ltd. (KRL), which sells properties under the brand “Rustomjee” is coming up with an IPO to raise Rs. 635cr, which opens on 14th Nov. and closes on 16th Nov. 2022. The price band is Rs. 514 - 541 per share.

* The IPO is a combination of fresh and OFS issue. KRL will not receive any proceeds from the OFS portion. Of the net proceeds from the fresh issue, around Rs. 342cr will utilized for the repayment/prepayment of certain borrowings availed by the company and its subsidiaries. Rest of the proceeds will be used for general corporate purposes.

* On 11th May 2022, KRL made a private placement of 0.34cr shares aggregating to Rs. 170cr to couple of investors at Rs. 499.4 per share.

Key competitive strengths:

* Well established customer-centric brand in the Mumbai Metropolitan Region (MMR)

* Amongst the leading residential real estate development companies in MMR with a well-diversified portfolio and strong pipeline

* Asset-light & scalable model resulting in profitability and stable financial performance

* Demonstrated project execution capabilities with in-house functional expertise

* Robust stakeholder management capabilities across the spectrum of project development

* Technology focused operations resulting in operational efficiency and enhancing customer experiences

* Strong focus on sustainable development 

* Experienced promoters, qualified senior management, good corporate governance and committed employee base

Risk and concerns:

* Unfavorable government policies & regulations

* Rise in the interest rates

* General economic slowdown

* Geographical business concentration risk

* Difficulty in maintaining profitability

* Competition

Below are the key highlights of the company:

* Indian real estate sector initially found it difficult to align with structural reforms & changes like Demonetization, RERA, GST, IBC, Subvention scheme ban etc. But these measures brought transparency, accountability and fiscal discipline in the sector over the last few years. The sector was on a growth trajectory since the last few years, but the Covid-19 pandemic put brakes in the momentum. However, since H2 2020, the sector rebounded sharply across the top cities of the country. Key growth drivers of the Indian real estate sector include improving education levels, increasing per capita income, improving penetration of housing & home ownership, increasing urbanization & urban housing shortage, increasing nuclearization of families, policy reforms and consolidation of real estate sector.

* In terms of the absorption, KRL is one of the prominent real estate developers in the micro markets of the MMR. The company sells properties under the “Rustomjee” brand. Based on the absorption levels between 2017-21, it has a market share of 28% in Khar, 23% share in Juhu, 11% in Bandra (East), 14% in Virar, 3% in Thane and 5% in Bhandup real estate market (Source: RHP). Moreover, the company with its well established brand, construction quality, distinctive projects and customer goodwill is able to command over 50% price premium in the markets of Juhu, Bandra (East) and Khar

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