Analysts are mixed on the issue with some counting superior return ratios as positives while others raising questions over its huge debt and negative cash flow. The grey market premium for the issue has also vanished.
“We also expect listing gains will be very limited in this IPO. We also have some investment concerns for the IPO, with the firm having a net debt of Rs 16,700 crore as of December 2020, any downturn in industry may affect the company significantly,” said Yash Gupta, Equity Research Associate, Angel Broking.
He warned that the company’s product portfolio is too concentrated on the MMR residential market, and any change in rule and regulation by authority may affect the company significantly.
“Company has a strong brand in affordable and mid income housing projects, but is not able to deliver the growth in sales and free cash flow in the last couple of years. The company has reported a sales drop of 68 per cent in 9MFY21 and reported a net loss of Rs 265 crore. Given weak revenue growth in the past and leveraged balance sheet we assign a ‘neutral’ rating to the IPO,” said Angel Broking.
Considering FY20 adjusted EPS of Rs 16.34 on a post-issue basis, the company is going to list at a PE of 29.74 times while its peer Oberoi Realty is available at a PE of 30.80 times, and Godrej Properties at 131.10 times.
The biggest concern for the investor is its debt, which the company said it is working to bring down. The management said it will be left with debt of Rs 12,700 crore after the IPO and other repayments.
But in a sector that is yet to come out of the crisis completely, if a significant portion of the contingent liabilities materialises, it could have an adverse effect on the results of operations, financial condition and cash flows, said Saurabh Joshi and Sagar Shah, analysts at Marwadi Shares and Finance.
But not everyone is bearish on a company’s prospects. Reasonable valuations and some recovery in the residential market have given wings to the hopes.
“The IPO reasonably priced vis-a-vis its peers like Godrej Properties and DLF. Macrotech’s plan to reduce net debt to Rs 12,700 crore in the coming quarters negates concern over high leveraging. Further, a strong project portfolio and the monetisation of huge land banks offer comfort. Moreover, its return ratio looks to be superior compared to peers,” said Vikas Jain of Reliance Securities, who has a ‘subscribe’ rating on the issue.
The issue will close for bidding on April 9.
