Compared to domestic institutional investors, foreign portfolio investor interest in this issue was higher, which could be attributed to the relatively large size of the company and the seemingly attractive pricing of the issue
MUMBAI: Shares of Macrotech Developers Ltd, earlier known as Lodha Developers Ltd, had a weak listing. On the National Stock Exchange, the shares opened at Rs436 apiece, a 10% discount to the issue price of Rs486. But there were buyers at these lower levels, and the stock traded at Rs464 at the time of writing, or down about 4.5% compared to the issue price.
Note that the Nifty Realty index has fallen almost 10% since the time the Lodha IPO closed, which suggests the listing is not all that bad. Of course, it remains to be seen where the shares settle at. While demand for the company's shares were weak among domestic investors, foreign institutional investors lapped them up, accounting for over 87% of all institutional demand, including the anchor book.
Given that the listing was at a discount, domestic investors who largely participate in IPOs for listing gains would feel justified about not chasing this IPO. Domestic mutual funds bid for less than 3% of the shares allocated for institutional investors.
After two failed attempts in 2009 and 2018, the company hit the primary markets with an initial public offering (IPO) of Rs2,500 crore. Its IPO was subscribed 1.36 times on the final day of bidding. Compared to domestic institutional investors, foreign portfolio investor interest in this issue was higher, which could be attributed to the relatively large size of the company and the seemingly attractive pricing of the issue.
The company plans to use Rs1,500 crore from the IPO proceeds to pare debt. However, analysts say, given its highly leveraged balance sheet, this may not move the needle on the company's debt situation. They feel the company would have to go for another round of fundraising. The company's gross debt stands at Rs18,662 crore, excluding debt worth 402 million pounds (Rs4,086 crore) sitting on the books of its two London projects. Analysts at Jefferies India Pvt. Ltd pointed out in a note to clients that Macrotech’s net debt to equity ratio of 3.8 times is the highest among its coverage of real estate stocks.
Apart from that, an immediate concern for investors in the real estate space is the ongoing restrictions due to the second wave of covid, which weighs on employment outlook. Analysts caution of further slowdown in sales of residential properties consequently, adding to the pile of unsold inventory, especially for Mumbai-based real estate developers. The company is largely Mumbai-focused, with most of its projects in the affordable housing segment.
In the past two quarters, real estate developers saw bumper sales thanks to Maharashtra government's stamp duty concessions. However, with that benefit now over, it remains to be seen how sales pan out for the sector in quarters to come.