Shriram Properties shares list at 20% discount. What should investors do now?

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Real estate developer Shriram Properties listed its shares at a discount of 20 percent to its issue price, at Rs 94, on the BSE on December 20 in a weak market.

The company’s maiden public issue  had seen a good response from investors with 4.6 times subscription during December 8-10. The Shriram Group company mopped up Rs 600 crore through the public issue at a price band of Rs 113-118 per equity share.

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While Angel One and Choice Broking had a ‘subscribe’ rating on the issue, Anand Rathi had advised to ‘avoid’ noting that the company had been reporting net loss since FY20.

Shriram Properties posted a loss of Rs 60.03 crore on a revenue of Rs 118.17 crore in the six months ended September 2021.

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In FY21, it reported a loss of Rs 68.17 crore as against a loss of Rs 86.39 crore a year ago. Revenue from operations fell to Rs 431.5 crore from Rs 571.96 crore during the same period.

Although the shares rose to Rs 101, the stock was still trading 14 percent lower than its issue price.

So, should investors exit the stock or hold on to it? Here’s what analysts are saying:

Rajnath Yadav, Research Analyst, Choice Broking

We had given a ‘subscribe’ rating for the issue. However, relatively poor investor demand and negative sentiment in the broader market mainly dented the listing performance.

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With favourable factors like historically low home loan interest rates, stagnant residential prices, and reduction of stamp duty in certain markets, we still maintain a positive view on the sector.

SPL is among the leading residential real estate development companies in South India, with presence in key markets of Bengaluru and Chennai. These two cities are among the two key residential housing markets in India and will continue to be among the top cities in terms of growth.

SPL’s business was severely impacted during the second wave of the pandemic and, therefore, it is likely to perform relatively better in the coming quarters. The company is backed by marquee investors and also has financial investors in its projects. So, we recommend investors to hold their investment for the medium term.

Likhita Chepa, Senior Research Analyst, CapitalVia Global Research

Shriram Properties saw a weak listing due to the ongoing market sentiment, despite the issue being fairly valued. Considering the volatility in the market, we do not advise investors to add this stock to their portfolio at the current levels as we expect further correction of around 15 percent in the next few sessions.

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With the US Federal Reserve planning to increase the pace of bond purchases, we expect FIIs to pull out their money in the coming months, due to which high-beta sectors like infrastructure and realty might witness some selling pressure.

Short-term investors can avoid adding this stock to their portfolio at the moment, while long-term investors can consider buying this stock at Rs 75-80 levels.

Mohit Nigam, Head - PMS, Hem Securities

The pricing of the issue was fairly moderate and was trading at 10 percent premium last week but today’s adverse market conditions due to rising interest rate scenarios and fear of Omicron have played a key catalyst in the weak listing of Shriram Properties.

Fundamentally, the company has suffered losses, has rising debt and displayed weak executing capabilities because of continuous delay in the completion of projects at times. In our IPO report, we advised investors to avoid the issue as the company has no comparative advantage. Investors who have exposure in the issue are advised to exit their position.

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Santosh Meena, Head of Research, Swastika Investmart

The IPO saw a muted demand on the back of losses where other real estate companies were booming in the past two years. In the upcoming years, real estate is likely to perform better, and only aggressive investors are advised to look at Shriram Properties, while others can opt for Sobha, Prestige, or Brigade.

Investors who are aggressive can hold the stock for the long term, while short-term investors should take a stop loss at Rs 80 on a closing basis.

Sonam Srivastava, Founder, Wright Research

Shriram Properties is well positioned in the real estate sector, and negative profitability in the past two years is pretty much in line with its peers. The IPO itself is moderately priced at twice the book value.

We expect the real estate sector to grow, and we would advise investors to go for the stock, but one needs to be cautious about the impact of Omicron variant and watch the operational performance of the company for a few quarters before taking an entry.

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