Highlights
| Issue Size –: 11,111,111 shares | Issue Open/Close – 18 Dec / 20 Dec, 2023 |
| Price Band (Rs.) 340 – 360 | Issue Size (Rs.) – 4,000 mn |
| Face Value (Rs) 5 | Lot Size (shares) 41 |
Suraj Estate Developers Limited (SEDL) incorporated in 1986 at Mumbai, is engaged in the real estate business and develops real estate across the residential and commercial sectors in South Central Mumbai region. They are focused primarily on value luxury, luxury segments and commercial segments.
In value luxury segment, the company offers 1 BHK flats and compact 2 BHK flats. In luxury segment the company offers 2/3/4 BHK flats and in the commercial segment the company offers build to suit model for select clientele & boutique offices. SDEL does not provide any construction services on its own and is 100 pct dependent on third party contractors for the construction services of its projects.
Their residential portfolio located in the markets of Mahim, Dadar, Prabhadevi and Parel, which are sub-markets of the South-Central Mumbai micro market where they have established their presence. They are now venturing into residential real estate development in Bandra sub-market.
The company is one of the market leaders in Redevelopment Projects in SCM. There are 270 projects launched in SCM sub-markets. Out of that 161 projects are redevelopment where SDEL has 8 pct market share and 109 are new projects where SDEL has 2 pct market share.
Since incorporation, SDEL have completed 42 projects with a developed area of more than 1.04 mn sqft. in the South-Central Mumbai region. In addition to the completed projects, they have 13 Ongoing Projects with a developable area of 2.03 mn sqft and saleable carpet area 0.60 mn sqft and 16 Upcoming Projects with an estimated carpet area of 0.74 mn sqft.
Out of the total proceeds of Rs. 4,000 mn, Rs. 2,850 mn would go towards Repayment/prepayment of aggregate outstanding borrowings of the Company and Subsidiaries, Rs. 350 mn would go towards acquisition of land or land development rights and the remaining amount would go towards general corporate purposes.
Key Highlights
- As per UNDP projections, by 2046 approx. 50 pct of population in India will be urban. However, rapid urbanization is expected to drive the demand for housing, offices and other real estate asset classes in the medium to long term. UNDP has projected that there will be 8 cities with a population of 10 mn & above by the year 2035 in India, highlighting the un-met housing demand.
- 13 out of 15 residential projects launched by Suraj are redevelopment projects and 13 out of 16 upcoming projects are redevelopment projects and 3 are vacant land. The company is expected to launch 3 projects which will give ~Rs. 10,000 mn revenue to the company.
- In 2020 the company revenue mix was 40 pct of luxury and 60 pct of value luxury and this revenue mix changed in 2023 to 50.4 pct of luxury and 49.6 pct of value luxury. From the total 736 of total units, the company has sold 520 units.
- As of FY23, the company debt to equity ratio stood at 8.29x and the debt of the company stood at Rs. 5,931 mn. Its average cost of borrowing stood at 16-17 pct but the company has availed new debt from the IndusInd Bank is less than 11 pct. After the IPO, the debt of the company will go down which will reduce the debt-to-equity ratio and the finance cost of the company.
- The company wants to enhance market leading position in SCM, continue to focus on redevelopment projects through asset light model, continue to pursue their differentiated product offerings in value luxury segment, Expand land reserves in SCM and build position in other MMR sub markets and Selectively develop commercial projects in the SCM region.
- The sales of the company has grown by 12.86 pct CAGR during the period FY21-23 while EBITDA and profit grew 32.05 pct CAGR and 125.73 pct over the same period respectively. During FY23, company reported sales of Rs. 3,057 mn which increased by 12.1 pct YoY while EBITDA rise by 14.6 pct YoY to Rs. 1,510 mn as EBITDA margin significantly improved from 48.3 pct in FY22 to 49.4 pct in FY23. Profit in the FY23 stood at Rs. 321 mn, which increased 21 pct YoY.
Key Risk
- As the company outsources 100 pct of construction to third party, any failure on their part to perform their obligations could adversely affect their business. SDEL are subject to extensive statutory or governmental regulations, including the Real Estate (Regulation and Development) Act, 2016 (the RERA).
- As on September 30, 2023, the total unsecured loans stood at Rs 774.35 mn which is 13.61 pct of the total loans availed by the Company. The unsecured loans taken by SDEL may be recalled by the respective lenders at any time.
Valuation
Suraj Estate Developers has been involved with prestigious projects like ICICI Apartments, NEAT House, Saraswat Bank Bhavan, CCIL Bhavan, etc. and has also created a niche place in redevelopment of chawl, societies and private properties. At the upper end of the price band, the issue quotes at PE of 27.48x its FY24E fully diluted earnings. One may Subscribe from a longer-term perspective.
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Disclaimer: The views expressed in the blog are purely based on our research and personal opinion. Although we do not condone misinformation, we do not intend to be regarded as a source of advice or guarantee. Kindly consult an expert before making any decision based on the insights we have provided.
