Bengaluru: Real estate firm Shriram Properties Pvt. Ltd plans to raise around Rs1,000 crore from an initial public offering (IPO) and enter the low-cost housing segment with homes in the Rs15-25 lakh price range, said a top executive.
“As an organization, we are IPO-ready. We had a good 2017-18 and are putting the house in order and preparing ourselves for an even better year. We will be realistic about the IPO, but we know this is the best time because the men have been separated from the boys in real estate; and if it’s a good company, it should do well," managing director M. Murali said in an interview.
In 2017-18, a tough year for most developers, Shriram Properties sold 1,204 homes in Bengaluru, its core market, and 555 in Chennai. In 2018-19, it expects to sell almost double the number of units. Shriram Properties has four large investors at the company level—Walton Street Capital LLC, Starwood Capital Group, Tata Capital Ltd and TPG Capital.
The Shriram Properties IPO would generate liquidity for these investors as well as potential exits.
Mumbai’s Lodha Group, which is expected to file for an IPO soon, will be a determining factor. If it fares well, it will be a huge confidence booster for the realty sector, said analysts.
“If there is another IPO that precedes ours and if it’s successful, it will create interest among investors," Murali said.
This year, Shriram Properties, which has a mid-income housing portfolio, plans to enter the low-income group (LIG) housing space and has a pipeline of projects of 6-7 million sq. ft across cities, with homes in the Rs15-25 lakh bracket. All these projects will enjoy tax incentives and other benefits under the Pradhan Mantri Awas Yojana (PMAY).
“There is a huge opportunity today which is underserved because not many organized developers are present in this segment despite huge demand. If we are able to control costs, we will be able to crack this segment. There is investor interest in LIG housing...some of them have been asking if we can do projects in markets where we aren’t present," Murali said.
The firm is exploring projects in the sub-Rs 15 lakh category as well, but discussions are at an early stage, he added.
Over the last year, Shriram Properties has raised significant capital from both domestic and foreign investors.
Earlier this year, it raised around Rs1,000 crore from ASK Group to invest in affordable and mid-income housing projects.
In 2017, The Xander Group Inc. and Dutch pension fund asset manager APG Asset Management NV bought an information technology (IT) special economic zone (SEZ) in south Chennai for around $350 million from a joint venture of Shriram Properties and SUN-AREA Property Partners.
The last time real estate firms hit the primary market was in 2010. Pune-based Paranjape Schemes filed for an IPO with the Securities and Exchange Board of India (Sebi) in July, 2015 and the proposal was cleared in December, but eventually the company didn’t go ahead with it.
Since then, realty firms have brought institutional investors on board in joint ventures or through stake sales.
“Broadly, for real estate IPOs today, any company with heavy residential focus may find it tough given what the sector has undergone in recent years. Retail investors would be driven by perception which may not be positive currently though institutional investors, who typically take a long-term view would evaluate a company’s management structure, track record, large ongoing projects etc," said Chintan Patel, partner, deal advisory-real estate and hospitality, KPMG.