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Review By Dilip Davda on December 13, 2023

•    SEDL specializes in redevelopment under regulation 33(7) of DCPR.
•    It has posted good growth in its top and bottom lines for the reported periods.
•    Based on FY24 annualized earnings, the issue appears fully priced. 
•    The management is confident of maintaining the trends with the ongoing projects and parcel of land banks. 
•    Investors may park funds for the medium to long term rewards. 

ABOUT COMPANY:
Suraj Estate Developers Ltd. (SEDL) has been involved in the real estate business since 1986 and develop real estate across the residential and commercial sectors in South Central Mumbai region. It has a residential portfolio located in the markets of Mahim, Dadar, Prabhadevi and Parel, which are sub-markets of the South-Central Mumbai micro market where SEDL has established its presence. It is focused primarily on value luxury, luxury segments and commercial segment. 

While the company has earned name and fame with its niche play in regulation 33 (7) of the Development Control and Promotion Regulations (DCPR), some of the prestigious projects like ICICI Apartments, NEAT House, Saraswat Bank Bhavan, CCIL Bhavan, etc. brought credentials for its working style.

The company is now venturing into residential real estate development in Bandra sub-market. Its focus area of operation is the South-Central region in Mumbai mainly consisting of Mahim, Matunga, Dadar, Prabhadevi and Parel, as its expertise lies is in the redevelopment of tenanted properties under Regulation 33(7) of the Development Control and Promotion Regulations ("DCPR") in the Mumbai region. Since most of the land parcels in the South Central Mumbai markets are in the nature of redevelopment projects, SEDL's core competence lies in tenant settlement which is a key element for unlocking value on such land parcels. 

The company identify cessed/ noncessed properties with existing tenants, and tie up with the landlords of such tenanted properties by entering into a development agreement or on outright purchase basis through conveyance deed. The Company does not provide any construction services on its own and is 100% dependent on third party contractors for the construction services of its Projects. 

Since incorporation, it has completed forty-two (42) projects with a developed area of more than 1,046,543.20 square feet in the South-Central Mumbai region. In addition to the Completed Projects, it has thirteen (13) Ongoing Projects with a developable area of 20,34,434.40 square feet and saleable carpet area 6,09,928 square feet and sixteen (16) Upcoming Projects with an estimated carpet area of 7,44,149 square feet.

Further, the Company has completed 4 projects in preceding three Financial Years. The completion timelines for each of the projects varies according to scope of work, project size, construction and approval complexities, conditions related to the project site and external factors which are beyond control of the Company. The Company has completed 42 projects in the last 37 years of its existence delivering on an average 3 to 4 projects in 3 years. Although, the completion of 4 projects in last 3 years is in line with Company's historical average delivery rate, there was some delay caused during the Covid-19 pandemic during such period.

As of October 31, 2023, it has redeveloped houses for more than 1,011 tenants free-of-cost under regulation 33(7) of the Development Control and Promotion Regulation, 2034 ("DCP Regulations"). Compliance of Regulation 33(7) of the DCP Regulations enables sanction of more than FSI - 3.00 for development by the regulatory authorities. As on the date of this Red Herring Prospectus, there are 19,642 number of cessed properties in the island city of Mumbai which are yet to be redeveloped.

SEDL provides 1BHK flats ranging from 300 to 500 square feet carpet area and compact 2BHK flats ranging from 500 to 800 square feet carpet area which have witnessed a robust demand in the South Central Mumbai region. Recently, in this segment it has completed projects namely, St. Anthony Apartments (Mahim), Lumiere (Dadar) and Elizabeth Apartment (Dadar). It is an early entrant in this segment by providing spacious 1BHK flats and compact 2BHK flats with sea views, banquets, parking space, gymnasium and premium quality amenities.

Its ability to design high-quality differentiated products and strategic positioning, coupled with limited land availability in the South Central Mumbai micro-market have been key to its success in the Luxury Segment. It provides 2 BHK flats ranging from 800 to 950 square feet carpet area and 3 BHK flats ranging from 1,000 to 1,500 square feet carpet area and 4 BHK flats ranging from 1,800 to 2,200 square feet carpet area which has witnessed robust demand in the South Central Mumbai region. Recently, in this segment it has Completed Projects namely Mangirish (Dadar) and Tranquil Bay (Dadar) which are located in close proximity to the Arabian Sea. The company is currently developing projects i.e. Palette (Dadar) and Ocean Star (Dadar), both designed by the leading architect Sanjay Puri Architects. These prime projects offer sea view, a distinguishing feature of floor to floor height of 12 ft. 6 inches, double glazing windows which provides insulation from sound and weather, swimming pool, multilevel podium parking, walking track, club house, kids play area, gymnasium, luxury fitting and fixtures, amongst other amenities.

IT has certain land parcels situated at Bandra (West) and Santacruz (East) for future development. As of October 31, 2023, it has Land Reserves of 10,359.77 square meters, which it intends to develop in future by utilizing the entire FSI potential of more than index 2.0, subject to various factors including marketability and receipt of regulatory clearances. It has land parcels admeasuring 9,631.35 square meters situated at Bandra (West), Mumbai, Maharashtra and land parcels admeasuring 728.42 square meters located at Santacruz (East), Mumbai, Maharashtra for future development. As of September 30, 2023, it had 126 permanent employees on its payroll and it also engage third party contract laborers as and when required. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden book building route IPO worth Rs. 400 cr. (approx. 11111123 shares at the upper cap). It has announced a price band of Rs. 340 - Rs. 360 per share having a face value of Rs. 5 each. The issue opens for subscription on December 18, 2023, and will close on December 20, 2023. The minimum application to be made is for 41 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 25.05% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO funds, it will utilize Rs. 285.00 cr. for repayment/prepayment of certain debts, Rs.35.00 cr. for acquisition of land or land development rights, and the rest for general corporate purposes. 

The joint Book Running Lead Managers (BRLMs) to this issue are ITI Capital Ltd. and Anand Rathi Advisors Ltd. while Link Intime India Pvt. Ltd. is the registrar of the issue. 

After issuing entire equity shares at par so far, it has also given bonus shares in the ratio of 1.5 for 1 in October 2021. The average cost of acquisition of shares by the promoters is Rs. 2.06 per share.

Post-IPO, SEDL's current paid-up equity capital of Rs. 16.63 cr. will stand enhanced to Rs. 22.18 cr. Based on the upper cap of IPO price band, the company is looking for a market cap of Rs. 1597.00 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 244.00 cr. / Rs. 6.28 cr. (FY21), Rs. 273.91 cr. / Rs. 26.50 cr. (FY22), Rs. 307.89 cr. / Rs. 32.06 cr. (FY23). For Q1-FY24 ended on June 30, 2023, it earned a net profit of Rs. 14.53 cr. on a total income of Rs. 102.81 cr. 

For the last three fiscals, the company has reported an average EPS of Rs. 8.16 and an average RoNW of 58.77%. The issue is priced at a P/BV of 13.27 based on its NAV of Rs. 27.12 as of June 30, 2023, and at a P/BV of 3.29 based on its post-IPO NAV of Rs. 109.58 per share (at the upper cap). 

If we attribute annualized FY24 earnings to post-IPO fully diluted paid-up equity capital of the company, then the asking price is at a P/E 27.48. Thus the issue appears fully priced. 

For the reported financial periods, the company has posted EBITDA margins of 36.10% (FY21), 48.30% (FY22), 49.39% (FY23), 45.63% (Q1-FY24), PAT Margins of 2.62%, 9.72%, 10.49%, 14.19%, and RoCE of 14.51%, 19.42%, 21.93% and 6.78% respectively.

Considering the work on hand and the land parcel bank having scope of rising business, the management is confident of repeating the performance reported for the recent years. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It has adopted a dividend policy in July 2023, based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer documents, the company has shown Oberoi Realty, Sunteck Realty, Keystone Realtors, Shriram Properties, Mahindra Lifespace, DB Realty and Hubtown Ltd. as their listed peers. They are trading at a P/E of 76.26, 00, 40.61 34.32, 00, 16.23, and 192.21 (as of December 13, 2023). However, they are not comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
The two BRLMs associated with the issue have handled 4 public issues during the last three fiscals, out of which none of the issues closed below the issue price on the listing date. 

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