One of the much-awaited IPO, which has been trying to join the Equity party since 2009, is finally here. THIS IS the THIRD TIME THE COMPANY APPLIED FOR IPO, So the question is, should you apply? just because Akshaykumar is doing an advertisement?
I love the advertisement. But when it comes to money, you must read the fine print. 2,500 crore IPO. One of the biggest. So let’s start.
As with other Real Estate companies, the Lodha Group has an enormous Debt burden. With the IPO, a large part will be out from the balance sheet. Macrotech Developers Ltd. will sell 25 billion rupees ($341 million) of shares next week as it needs cash to help repay debt. A successful share sale will be vital in paring the 186.6 billion rupees of total debt outstanding at the end of 2020. The debt is not the only issue for the company. Rating downgrade, a Family fight, and dropping one family member’s name as promoter due to unknown reasons. In recent years, scrutiny has been piling on the firm following rating downgrades deeper into junk territory. Macrotech skirted a default on its dollar bonds about a year ago. The company’s high leverage means it has “little to no ability to absorb any shocks of unforeseen events, Which as we are in Pandemic time, are many around us.
I want to Caution here. As we are talking about a real estate company here, We need to talk about DLF, which once was the sponsor of IPL, But then faced many things. DLF is Delhi based company. Lodha is Mumbai based company. Sure Mumbai market is different, but debt is always the issue. Not shocking that the company will be using 3/5th of IPO money to repay debt. The remaining amount will be going for general corporate purposes and Buying land parcels which are Raw material for Any real estate company.
One thing to highlight here is covid is changing everything. For a large part of 2020, we all were doing WORK FROM HOME. I am sure that will continue for some time, so the assumption of growth in the sector is not wrong.
DRHP also highlights one thing. This company made a loss in the first three-quarters of FY 21. Not shocking as commercial activity was not taking place normally, but even before that, profitability went down. For FY 18 Revenue 13,527.192 Profit 1,789.39. Makes 13% profitability. Not bad. Nearly the same in FY 19. But next year it was 5.9%—a drastic change. DRHP also shows that Finance costs are drastically increased in recent times. one thing that shocks me is that at the same time, the company is making financial assets in the form of long-term loans. As per DRHP, on 31 December 2019, 116.73 was the amount as a loan given. Maybe inter-corporate deposits. On 31 March 2020, it was 4,256.00 crore. What just happened?
Further, If that is the loan given, why is there no sufficient increase in interest received in investment? Is that regular? I don’t know the accounting of Real estate companies. Maybe I am wrong, but That is what my eyes catch.
Once their ROE was 48.4% today, it is (7%). The good thing is Their EBITDA margin is looking good. That makes it clear that the company is poised for growth after the loan repayment. But still, some issues remain. So I am waiting for IPO to open and list.
