Signature Global IPO (Avoid)

Highlights

Signature Global India Limited was incorporated in 2014 and with a market share of 19 pct, the company is the largest real estate development company in the National Capital Region of Delhi (Delhi NCR) in terms of units supplied (in the below Rs 8 mn price category) between 2020 and the three months ended March 31, 2023.

The company began operations in 2014 with the opening of their Solera project on 6.13 acres of land in Gurugram, Haryana, through their Subsidiary, Signature Builders Private Limited. The company has expanded their activities throughout the years, and as of March 31, 2023, they have sold 27,965 residential and commercial units, all inside the Delhi NCR region, totalling 18.90 million square feet (MSF)

Through GoI and state government programs, the company has strategically concentrated on the Affordable Housing (AH) sector (prices below Rs.4 mn) and the Middle Income Housing (MH) segment (prices between Rs. 4 mn and Rs. 2.5 mn). The state government of Haryana under its various policies allows the development of AH and MH.

The company were the largest real estate developer under the AHP in the Gurugram and Sohna region as of March 31, 2023, with a market share of 18 pct in terms of total supply of units from 2020 to the three months ending March 31, 2023.

Company will utilize Rs. 2640 mn of the net proceeds of the new equity issuance for re-payment or pre-payment, in full or in part, of certain borrowings availed by the Company, Rs. 1680 mn will utilize towards Infusion of funds in certain of their Subsidiaries, namely Signatureglobal Homes, Signatureglobal Developers, Signatureglobal Business Park and Sternal Buildcon for repayment or pre-payment, in full or in part, of certain borrowings availed by their Subsidiaries And remaining amount would go towards Inorganic growth through land acquisitions and general corporate purposes. Rs 1,270 mn of the total issue would go to the existing selling shareholder.

Key Highlights

• Housing sales in the entire NCR increased by 73 pct from 23,209 units in 2020 to 40,053 units in 2021. Despite limited supply, the absorption trend continued in 2022, with sales of 63,712 units increasing by 59 pct. Gurugram accounted for 75 pct of the 31,706 units launched in NCR in 2022, adding up to 19,099 units. With 9,941 new launches scheduled in the first quarter of 2023, supply is predicted to increase, accounting for 80 pct of NCR supply.
• In Gurugram, the company had a 31 pct market share in the affordable and lower mid segment, and a 24 pct market share in all budget categories from 2020 to the three months ending March 31, 2023.
• The Company had completed an aggregate Developable Area of 7.64 msf in their Completed Projects and an additional 1.37 MSF in their Ongoing Projects, comprising 11,427 residential units and 932 commercial units, for which the company received occupation certificates.
• Among Company’s core strengths is their ability to efficiently turn around projects on land that they tie-up and have typically launched projects within a period of 18 months from the date of acquisition of the land.
• In order to complete projects on schedule and under budget, we use aluminium formwork technology in the majority of their projects. The technology greatly shortens their construction time while producing robust, high-quality structures.
• Its sales increased at a CAGR of 335.12 pct over FY21-23. Also, the adjusted EBITDA margin of the company is improving YoY and it currently stood at 13.88 pct in FY23 as compared to the adjusted EBITDA margin of 3.04 in FY22. Despite improving sales and Margins Company is not able to generate profit.

Key Risk

• The withdrawal of certain benefits under the Haryana Affordable Housing Policy, 2013 and the Deen Dayal Jan Awas Yojna, may adversely affect company business, prospects and results of operations.
• The company has pledged their shareholding in the relevant Subsidiaries to secure financing for such Subsidiaries. In the event such pledge may be invoked, their shareholding in their Subsidiaries may be diluted.

Valuation

Signature Global is the largest real estate developer in Delhi NCR region in affordable housing. The Company has posted losses for the last three financial years, thus the issue is at a negative P/E. One can avoid this issue.

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