Macrotech Developers IPO: Lodha finally goes Public

Macrotech Developers Limited, also popularly recognized as Lodha Developers, has launched its IPO at a price band of INR 483 to INR 486 per share with the issue closing on April 9, 2021. With an issue size of INR 2,500 crores, this is by far the largest issue in the past 30 days.

IPO SNAPSHOT:

ABOUT MACROTECH:

Macrotech Developers Limited was incorporated as ‘Lodha Developers Pvt. Ltd.’ in 1995. Its primary business is the development of residential real estate. It is the largest real estate developer in the country in terms of residential Sales value for the period 2014-2020 and has significant residential projects in the Mumbai Metropolitan Region and Pune. It has also entered into logistics and industrial parks and commercial real estate development.

Its portfolio of projects include Trump Tower Mumbai, Lodha Altamount, The World Towers, Lodha Bellissimo, and Lodha Park. It is also behind developing ‘Palava’, which is an integrated smart city located near Mumbai. They have built various brands which include “Lodha”, “Crown – Lodha Quality Homes” and “CASA by Lodha” within the mid-income and affordable housing segment, “Lodha Luxury” within the premium and luxury housing segment, and the “Lodha Excelus”, “iThink”, and “Lodha Supremus” within office spaces segment.

OBJECTS OF THE ISSUE:

Out of the total amount being raised (INR 2,500 crores), 60% of the amount will go towards the reduction of debt.

Major Objects of the issue	(INR Crores)
Category	Amount
Reduction of Debt Outstanding	1,500
Acquisition of land or land development rights	375
(Source: Tavaga Research)

INDUSTRY OVERVIEW:

The Indian real estate market has historically grown at ~10% from $~50 billion in 2008 to $~120 billion in 2017. Further, it is estimated to reach $~1 trillion by 2030. The contribution of real estate to India’s GDP in 2017 was ~6% which is estimated to grow up to ~13% by 2025.

The Indian residential real estate market where the company has its major operations is dominated by branded players like Lodha Group itself. Considering Sales for the period 2014-20, the top five developers include Godrej Properties, Prestige Estates Projects, Sobha and DLF apart from Lodha. With INR~500 billion of sales and ~57 million sq feet of area delivered over the period 2014-20, Lodha is the largest real in terms of sales and the second largest in terms of area delivered.

With the implementation of RERA norms, it has become difficult for small developers. Many were not able to keep up with the norms and either ran out of business or merged with bigger players. Also, there has been a shift towards branded developers which has further led the demand in Mumbai metropolitan region to overpower and hence good for builders like Lodha itself. The unsold inventory is hence constantly declining and was at its lowest in 2020 since 2015.

Should the investors consider investing in the IPO?

Before making any decisions we must consider the following points:

POSITIVES:

• Increasing Urbanisation: Rapidly increasing urbanization in India could create new avenues for residential, offices and other real estate asset classes driving the industry as a whole.
• Nuclearization: With the nuclearization of families, new households are being added which further add to the demand for residential properties.
• Increasing Population: Ever-increasing population and increasing education and income levels could further boost the market for real estate.
• Brand Preference: Increasing consumer preference for branded developers also play in favour of Lodha.

NEGATIVES:

• COVID-19: The pandemic has led many companies to switch to Work from Home instead of keeping a lease on which has impacted the market. Further, it has had some impact on residential demand as well apart from construction delays.
• Geographical Concentration: Even though the company has a presence even outside India, its major operations are concentrated in the Mumbai Metropolitan Region which poses to be a risk given that new Indian cities are developing as industrial hubs.
• Regulations: Tougher regulations and unanticipated regulatory changes could also be a big threat.
• High Debts: By end of 2020, the company had a debt of ~INR 18,662 crores on a consolidated basis. The reduction of debt is also a major object behind this public issue.

Disclaimer: The above write-up is meant for informational and educational purposes only. Kindly do not consider this as a recommendation to subscribe to the IPO / to buy or sell the stock.

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