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A pioneer in the KEY CHANGESredevelopment landscape of South : TARGET -Central Mumbai...

Suraj Estate Developers Ltd (SEDL), established in September 1986, is a marquee real estate construction company with over 35 years of experience across the residential and commercial sectors with a primary focus on value luxury, luxury, and commercial segments. Specializing in the redevelopment of tenanted properties under Regulation 33(7) of the Development Control and Promotion Regulations (DCPR) in Mumbai, their primary operational focus is the South-Central region, covering Mahim, Matunga, Dadar, Prabhadevi, and Parel. From 1986 to 2023, SEDL has successfully completed 42 projects, encompassing both residential and commercial developments (97.62% being redevelopment projects). The prestigious projects of SEDL are ICICI Apartments, NEAT House, Saraswat Bank Bhavan, CCIL Bhavan, etc.

• From 2016 to H1FY23, SEDL leads among the top developers, enjoys holding a market share of ~17.25% as per absorption (in units) in the combined submarkets. (Source: Anarock Research)

• In South Central Mumbai, MHADA (Maharashtra Housing and Area development Authority) data reveals a total of 19,642 old, dangerous & dilapidated buildings, yet to redeveloped, provides a great opportunity for re-developers like Suraj.

• Revenue/EBITDA/PAT clocked a CAGR of ~13%/32%/126% respectively, over FY21-23, driven by an uptick in sales of new projects, asset- light business model and efficient capital utilisation.

• SEDL enjoys sustainable EBITDA margins of ~44.6% (3 yr. Avg FY21-FY23) and a strong RoE of ~45% (3 yr. Avg) over the same period.

• SEDL follows an area sharing model with landlords and barely acquire land for construction. It helps them to reduce upfront cost and gives them a competitive advantage over its listed peers by superior margins.

• SEDL currently holds 221 unsold units, comprising 5 units in completed projects and 216 units in ongoing projects, presenting a positive outlook for robust free cash flow generation in the upcoming years.

• The current adjusted D/E is 8.3x, which will substantially go down to 0.65x, on utilisation of Rs. 285cr from the IPO proceeds.

• At the upper price band of Rs.360, SEDL is available at a P/Bv of 3.3x (FY24E Annualised), which appears to be fairly priced. Considering its consistent growth in both topline and bottomline, healthy return ratios, asset light business model, redevelopment opportunities and promising industry outlook, we assign a “Subscribe” rating on a short to medium term basis.

Purpose of IPO

The IPO consists of only Fresh issue of Rs.400cr. The proceeds from its fresh issuance worth Rs.285cr will be utilised for repaying its and its subsidiaries outstanding borrowings, Rs.35cr for land acquisition/development rights and rest for general corporate purposes.

Key Risks

• Dependence on Mumbai Market: Concentration in South Central Mumbai region.

• Increased competition from other players.

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