Macrotech Developers (formerly Lodha Developers), one of India’s largest real estate players, has filed a draft red herring prospectus with market regulator Securities and Exchange Board of India (Sebi) to raise around Rs 2,500 crore via an initial public offer, sources with knowledge of the matter told Moneycontrol.
On January 6, 2021, Moneycontrol was the first to report that the realtor had revived its listing plans on the back of a sharp surge in residential sales and improved investor sentiment and would file its papers with Sebi by March.
“The e-filing of the DRHP has been done. The Lodha IPO is majorly a primary issue of shares and the proceeds are likely to be used for debt reduction, land acquisition and new projects,” said one of the persons cited above. In 2018, the realtor had said a major chunk of the IPO proceeds would be used towards debt repayment.
This is the third attempt by the Mumbai-based firm, which is known for luxury projects such as Trump Towers in Mumbai and Grosvenor Square in London, to launch an initial public offering (IPO). Lodha Group weighed a listing in 2009 and 2018, but deferred those plans due to unfavourable market conditions.
“There are a total of 10 investment banks working on the IPO. Axis Capital, JP Morgan and Kotak are the lead advisors followed by ICICI Securities, Edelweiss Securities, IIFL Securities, SBI Capital, JM Financial, Yes Securities and Bank of Baroda Capital,” a second person told Moneycontrol.
“Law firm Cyril Amarchand Mangaldas is the company counsel and Indus Law is the banker’s counsel. Sidley Austin is the international legal counsel. The exact launch timeline for the IPO will be decided later,” a third person told Moneycontrol. A fourth person also confirmed the filing of the DRHP.
All the four persons spoke to Moneycontrol on condition of anonymity.
Moneycontrol tried to get in touch with the Lodha Group but could not elicit an immediate comment. The investment banks and law firms could not be contacted immediately as well.
Another player in the space, Mumbai-based realty player Puranik Builders, which has received the Sebi nod for its IPO, is planning to hit the markets soon.
Time for a realty check
According to the recent Economic Survey, the COVID-19 pandemic hit the residential property market during the April-June period last year but sales have improved in the affordable homes segment since July, reflecting economic recovery in the real estate sector.
During the July to September 2020 quarter, transactions for HPI@Assessment Prices have increased by around 150 percent on a Q-o-Q basis, the survey said. The housing price index HPI @ Assessment Prices is based on valuation data collected from key lending institutions.
The stocks of Lodha’s listed peers like DLF, Godrej Properties, Mahindra Lifespace, Sobha Ltd and Brigade Enterprises have risen sharply in the last three months, indicating bullish investor sentiment.
“The Indian real estate sector has shown green shoots of recovery post the lockdown driven by interest rates being at historic lows and some state governments lowering stamp duties, circle rates and statutory levies. The commercial segment has withstood the pandemic which is evidenced by firstly, two recent successful REITs, one of which was launched during the lockdown and secondly, large transactions undertaken by global funds in the latter half of 2020,” says Gaurav Karnik, National Leader (Real Estate), EY India.
Karnik believes that the sector will witness continued investments from global investors, including sovereign wealth funds and pension funds who are eager to participate in upcoming REITs in the next few years as well as IPO’s launched by developers with a strong track record of delivery and projects in the right pricing segments.
According to Prime Database, the last non-REIT (real estate investment trust) IPO in the real estate/construction space was Karda Constructions, which got listed in April 2018. Prior to that, Capacit’e Infraprojects Ltd and PSP Projects Ltd made their debuts in September 2017 and May 2017, respectively.
When it comes to REIT listings, in April 2019, India saw its first REIT IPO when Embassy Office Parks, backed by Blackstone and Embassy Group hit the domestic bourses. Later, in August 2020, the second REIT IPO, namely Mindspace Business Parks, backed by Blackstone and K Raheja Corp, made its market debut. The Lodha group had earlier toyed with the idea of monetising its assets through the REIT route.
Lodha Group: A few quick stats
Lodha Developers was founded in 1995 and has operations in Mumbai, Pune, and London. As of March 2020, it had 38 projects in India with a developable area of 23 million square feet and 19 planned projects with a developable area of 54 million square feet. It clocked sales of 6.2 million square feet in India in FY20. According to reports, the Lodha Group sold around Rs 2,500 crore worth of inventory in the December quarter and had garnered around Rs 6,000 crore of sales for the full year. In the last two years, the firm has tilted its focus from premium, luxury projects to affordable housing.
According to the firm’s FY20 annual report, its consolidated revenues rose by 4.6 percent on a YoY basis to Rs 12,486 crore as compared to Rs 11,936 crore. Profit for the year decreased by 54.97 percent on a YoY basis to Rs 742 crore as compared to Rs 1,647 crore on account of lower average margins due to change in project mix and losses of overseas projects.
Lodha’s FY-19-20 annual report says that its total indebtedness stood at Rs 17,176 crores. In March 2020, during the initial phase of the COVID-19 outbreak, the firm’s UK arm raised $225 million by selling bonds to refinance a part of its debt.
In November 2020, rating agency Moody’s changed its outlook on the firm to 'stable' from 'negative' citing an improvement in liquidity position and a gradual recovery in the company’s operating performance, which would result in higher earnings and cash flow.