What you must know about Suraj Estate Developers IPO?

Suraj Estate Developers Ltd is a real estate construction and development company that has been around for nearly 37 years since 1986. The company mainly focuses on developing residential and commercial real estate in the South Central Mumbai region. This is one of the fastest growing real estate market in the Mumbai region. The company has an outsourcing model with its entire construction activities being outsourced to third-party contractors for all its projects. Till date, Suraj Estate Developers Ltd has completed a total of 42 projects in the South-Central Mumbai region. In addition, the company also has around 13 ongoing projects and an addition 16 upcoming projects. Some of its marquee properties in the Mumbai region include Suraj Eleganza-II and ICICI Apartments, CCIL Bhavan (Phase-I up to 6th floor) and Tranquil Bay-I, Elizabeth Apartment and Mon Desir, Lumiere and Tranquil Bay-II, Jacob Apartments, Suraj Eleganza-I and Gloriosa Apartments. This is just a partial list of projects of Suraj Real Estate Developers that have been well received.

Till date, Suraj Real Estate Developers Ltd has developed more than 10 lakh SFT of land in Mumbai. In the residential portfolio, Suraj Estate predominantly operates in the "Value Luxury” and "Luxury” segments,. The typical price categories for these units ranges from ₹1 crore to ₹13 crore. Additionally, in the commercial property segment, Suraj Real Estate Ltd has built and sold corporate headquarters for institutional clients like Saraswat Cooperative Bank in Prabhadevi, National Stock Exchange of India (NSE), Union Bank of India and Clearing Corporation of India Limited (CCIL). The fresh issue portion will be largely utilized to repay borrowings of the company and its subsidiaries as well as for acquisition of land and land development rights. Some portion of the fresh funds will also be used for general corporate purposes. The IPO will be lead managed by ITI Capital Ltd and Anand Rathi Securities Ltd. Link Intime India Private Ltd will be the registrar to the issue.

Highlights of the IPO issue of Suraj Estate Developers Ltd

Here are some of the key highlights to the public issue of Suraj Estate Developers IPO.

• Suraj Estate Developers IPO will be open from December 18, 2023 to December 20, 2023. The stock of Suraj Estate Developers Ltd has a face value of ₹5 per share and the price band for the book building IPO has been set in the band of ₹340 to ₹360 per share. The final price will be discovered within this band through the process of book building.
   
• The IPO of Suraj Estate Developers Ltd will be entirely a fresh issue of shares with no offer for sale (OFS) component. As you would be aware, a fresh issue tends to bring in fresh funds into the company, but is also EPS and equity dilutive. However, OFS is just a transfer of ownership and does not entail dilution of equity or of EPS.
   
• The fresh issue portion of the IPO of Suraj Estate Developers Ltd comprises the issue of 1,11,11,111 shares (111.11 lakh shares approximately), which at the upper price band of ₹360 per share will translate into a fresh issue size of ₹400.00 crore.
   
• Since there is no offer for sale (OFS) component in the IPO, the fresh issue portion will also be the overall size of the IPO. Therefore, the overall IPO of Suraj Estate Developers Ltd will comprise of the sale of 1,11,11,111 shares (111.11 lakh shares approximately), which at the upper price band of ₹360 per share translates into total IPO size of ₹400.00 crore.

The IPO of Suraj Estate Developers Ltd will be listed on the NSE and the BSE on the IPO mainboard.

Promoter holdings and investor allocation quota

The company was promoted by Rajan Meenathakonil Thomas. Currently the promoters hold 100.00% stake in the company, which will get diluted post the IPO to 74.95%. As per the terms of the offer, 50% of the net offer is reserved for the qualified institutional buyers (QIBs), while 35% of the total issue size is reserved for the retail investors. The residual 15% is kept aside for the HNI / NII investors. The table below captures the gist of the allocation to various categories.

It may be noted here that the Net Offer above refers to the quantity net of employee quota, if any. The anchor portion, will be carved out of the QIB portion and the QIB portion available to the public will be reduced proportionately.

Lot sizes for investing in the IPO of Suraj Estate Developers Ltd

Lot size is the minimum number of shares that the investor has to put in as part of the IPO application. The lot size only applies for the IPO and once it is listed then it can be even traded in multiples of 1 shares since it is a mainboard issue. Investors in the IPO can only invest in minimum lot size and in multiples thereof. In the case of Suraj Estate Developers Ltd, the minimum lot size is 41 shares with upper band indicative value of ₹14,760. The table below captures the minimum and maximum lots sizes applicable for different categories of investors in the IPO of Suraj Estate Developers Ltd.

It may be noted here that for the B-HNI category and for the QIB (qualified institutional buyer) category, there are no upper limits applicable.

Key dates for Suraj Estate Developers IPO and how to apply?

The issue opens for subscription on 18th December 2023 and closes for subscription on 20th December 2023 (both days inclusive). The basis of allotment will be finalized on 21st December 2023 and the refunds will be initiated on 22nd December 2023. In addition, the demat credits are expected to happen on 22nd December 2023 and the stock will list on 26th December 2023 on the NSE and the BSE. Suraj Estate Developers Ltd will test the appetite for market proxies to consumption and luxury goods related stocks The credits to the demat account to the extent of shares allotted will happen by the close of 22nd December 2023 under ISIN (INE843S01025). Let us now turn to the more practical issue of how to apply for the IPO of Suraj Estate Developers Ltd.

Investors can apply either through their existing trading account or the ASBA application can be directly logged through the internet banking account. This can only be done through the authorized list of self-certified syndicate banks (SCSB). In an ASBA application, the requisite amount is only blocked at the time of application and the necessary amount is debited only on allotment. Investors can apply in the retail quote (up to ₹2 lakh per application) or in the HNI / NII quota (above ₹2 lakh). Minimum lot sizes will be known after pricing.

Financial highlights of Suraj Estate Developers Ltd

The table below captures the key financials of Suraj Estate Developers Ltd for the last 3 completed financial years.

Data Source: Company RHP filed with SEBI (FY refers to Apr-Mar period)

There are few key takeaways from the financials of Suraj Estate Developers Ltd which can be enumerated as under

1. In the last 3 years, revenue growth has been modest and growing at a standard clip of around 12%. However, what stands out about Suraj Estate Developers Ltd is that the net profits have grown five-fold in the last 2 years with a sharp improvement in the net profit margin as well as robust ROE.
    
2. The company operates in a segment where the price point is not too critical and the margins are relatively better compared to the low-cost housing scene. This has led to ROE consolidating at much higher levels.
    
3. The company has low sweating of assets, but it may not too relevant at this juncture when the company is on a high growth path. However, it would be the key to enhancing the ROE and justifying valuations at a future date.

Let us turn to the valuations part. On the latest year diluted EPS of ₹10.10, the stock is available in the IPO at a P/E of 35.6 times. That is P/E ratio slightly on the higher side, although it will depend on the growth in the next couple of years. The latest year valuations would be more relevant for a business that is focused on near term growth and where the underlying paradigm is changing. However, other financials like ROE and PAT margins are relatively robust and should be able to hold valuations. Now, for some qualitative aspects.

• Deep insights and presence in the value luxury and luxury space, which is less price sensitive, assuring better margins
   
• Expertise in tenant settlements, which is very critical in redevelopment projects in many of the sub-markets in this region.
   
• Experienced promoter team with deep insights in the business.

Investors must appreciate that the IPO does entail higher risk due to valuations being on the higher side. Investors must be willing for a higher risk appetite and also take a longer term perspective in this IPO.