Shriram Properties - ICICI Direct

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December 7, 2021

Price Band | 113-118

Shriram Properties Ltd (SHRIRAM)

NOT RATED

Established real estate developer in South India…

About the Company: Shriram Properties Ltd (SPL) is one of the leading

residential real estate development companies in South India and stands among top

five in terms of number of units launched between CY12- Q3 CY21 across Tier 1

cities of South India.

Primarily focused on the mid-market and affordable housing categories

(83.69% of 16.76 mn sq ft total saleable area for completed projects).

Additionally, SPL has presence in the mid-market premium and luxury

housing categories, and commercial and office space segments.

The company has realized pre-sales volumes of 1.56 mn sq ft, 3.00 mn sq

ft, and 3.25 mn sq ft of saleable area during H1 FY22, FY21 and FY20

valued at ₹587.4 crore, ₹1,244.3 crore and ₹1,148.6 crore respectively.

Key triggers/Highlights:

Part of the Shriram Group and backed by Marquee Investors

Demonstrated robust capabilities in project identification and execution

track record having recorded 22.6% pre-sales volumes CAGR over FY17-21

Scalable and asset light business model supported by strong financial

position

Well positioned to benefit from regulatory and industry developments

What should investors do? SPL is funded by marquee global and domestic

financial investors with 58.34% of the company’s outstanding equity (as of

September 30, 2021) is owned by TPG, Tata Opportunities Fund, Walton Street

Capital and Starwood. At the upper end of price band, the company is valued at

~2.6x P/B.

We assign UNRATED rating to the IPO

Key risk & concerns

Geographically concentrated in key cities including Bengaluru, Chennai and

Hyderabad in South India

SPL has pledged equity shares of certain subsidiaries in favour of their

respective lenders

COVID-19 disease may affect business and operations

Key Financial Summary

Source: RHP, ICICI Direct Research; * Post IPO, # at upper band

| crore FY19 FY20 FY21 H1 FY22 2 year CAGR (FY19-21)

Net Sales 650.1 572.0 431.5 118.2 (18.5)

EBITDA 6.9 32.5 73.9 0.2 226.2

Net Profit 48.8 (86.4) (68.2) (60.0)

EPS (|) # 2.9 (5.1) (4.0) (3.5)

P/E (x) *# 40.9 NA NA NA

Price / Book (x) *# 2.0 2.2 2.4 2.6

EV/EBITDA (x) *# 374.1 81.5 35.8 NA

RoCE (%) 3.9 4.9 7.1 4.4

RoE (%) 5.0 NA NA NA

Issue Details

Shareholding Pattern (%)

Objects of the issue

Research Analyst

Bhupendra Tiwary, CFA

[email protected]

Lokesh Kashikar

[email protected]

Issue Opens 8th December 2021

Issue Closes 10th December 2021

Issue Size | 600 Crore

Fresh Issue | 250 Crore

Offer for Sale | 350 Crore

Price Band | 113 - 118

No. of shares on offer (in crore) 5.08-5.31

QIB (%) 75.0

NIB (%) 15.0

Retail (%) 10.0

Minimum lot size 125 Shares

upto | 3 crore is reserved for employees

Pre-Issue Post-Issue

Promoter 32.0% 28.0%

Public 68.0% 72.0%

| crore

Repayment and/or pre-payment of

borrowings

200.0

General corporate purposes -

Fresh Issue 250.0

Offer for sale 350.0

ICICI Securities |Retail Research 2

ICICI Direct Research

IPO Review| Shriram Properties Ltd

Company Background

Incorporated on March 28, 2000, Shriram Properties Ltd (SPL) is a part of the Shriram

Group and one of the leading residential real estate development companies in

South India, primarily focused on the mid-market and affordable housing categories.

It is also present in the mid-market premium and luxury housing categories as well as

commercial and office space categories in its core markets. Further, having

commenced the operations in Bengaluru, SPL expanded its presence gradually to

other cities in South India which includes Chennai, Coimbatore and Visakhapatnam.

The company also has presence in Kolkata, developing a large mixed-use project.

As of September 30, 2021, SPL has completed 29 projects, representing 16.76 mn sq

ft of saleable area, out of which 24 completed projects are in the cities of Bengaluru

and Chennai (90.6% of the saleable area). Further, 83.69% of total saleable area for

completed projects were in the mid-market category and affordable housing

category (mid-market and affordable categories accounting for 51.44% and 32.25%

respectively), and the remainder in the commercial and office space and luxury

housing categories. Additionally, plotted developments accounted for 33.41% and

34.67% of sales volumes during H1 FY22 and FY21, respectively.

SPL has a total portfolio of 35 projects as of September 30, 2021, consisting of 26

ongoing projects, 5 projects under development and 4 forthcoming projects, which

accounts for 56.28%, 17.71% and 26.01% of 46.72 mn sq ft of estimated saleable

area respectively. Bengaluru and Chennai accounted for 67.15% of total estimated

Saleable Area. In addition, the company has land reserves of ~197.47 Acres, with a

development potential of ~21.45 mn sq ft of estimated saleable area. Further, SPL

has realized pre-sales volumes of 1.56 mn sq ft, 3.00 mn sq ft, 3.25 mn sq ft and 3.56

mn sq ft, of saleable area for H1 FY22 and FY21, FY20 and FY19, respectively. The

company has achieved pre-sales volumes despite the effect of COVID-19 pandemic.

Exhibit 1: Key operational details*

Source: RHP, ICICI Direct Research; * project originally under joint venture model, for which SPL received DM fees

Details Completed Projects Ongoing Projects Projects Under

Development

Forthcoming

Projects

Total

Number of Projects

Owned 5 5 3 1 14

Joint Venture or Joint Development Agreement 23 10 1 1 35

Development Management 1 11 1 2 15

Total 29 26 5 4 64

Area (in mn sq ft)

Owned 4.1 6.2 7.2 0.2 17.6

Joint Venture or Joint Development Agreement 10.7 13.7 0.3 4.3 28.9

Development Management 2.0 6.4 0.9 7.6 17.0

Total 16.8 26.3 8.3 12.2 63.5

Number of Projects by Geography

Bengaluru 22 18 1 3 44

Chennai 2 4 3 1 10

Kolkata - 2 1 - 3

Others 5 2 - - 7

Total 29 26 5 4 64

Estimated Saleable Area by Geography (in mn sq ft)

Bengaluru 11.8 11.0 0.3 12.0 35.0

Chennai 3.4 6.0 2.0 0.2 11.5

Kolkata - 4.3 6.0 - 10.3

Others 1.6 5.0 - - 6.6

Total 16.8 26.3 8.3 12.2 63.5




Exhibit 4: Summary of key performance indicators

Source: ICICI Direct Research, RHP * as of September 30, 2021

Exhibit 5: SPL’s major presence across Southern India*


FY19 FY20 FY21 H1 FY22

Sales (mn sq ft) 3.6 3.3 3.0 1.6

Value (₹ in crore) 1,432 1,149 1,244 587

Collection (₹ in crore) 873 1,033 831 530

Construction (₹ in crore) 485 366 250 286




Exhibit 6: Overview of Completed projects*


Exhibit 7: Overview of Projects under Development*


Project Name Category Location

Total saleable

area

(in sq ft)

Total

saleable area

sold (in sq ft)

Date of Occupation

Certificate /

Completion

Certificate

Economic

Interest

Ownership Model

Shriram Shriranjani Residential: Mid-Market Bengaluru 19,280 13,822 September, 2000 - JDA (Area Share)

Shriram Shivaranjani Residential: Mid-Market Bengaluru 99,208 70,934 December 10, 2002 72% JDA (Area Share)

Shriram Shankari Residential: Mid-Market Bengaluru 78,254 60,256 May 14, 2004 77% JDA (Area Share)

Shriram White House 2 Residential: Mid-Market Bengaluru 1,56,552 1,01,790 May 12, 2005 65% JDA (Area Share)

Shriram Sadhana Residential: Mid-Market Bengaluru 4,23,148 3,17,361 June 1, 2005 75% JDA (Area Share)

Shriram Spurthi Residential: Mid-Market Bengaluru 3,87,117 3,05,822 December 21, 2005 79% JDA (Area Share)

Shriram Samskruthi Residential: Luxury Bengaluru 82,509 51,981 December, 2005 63% JDA (Area Share)

Shriram Shreyas Residential: Mid-Market Bengaluru 4,38,637 3,02,660 April 25, 2006 69% JDA (Area Share)

Shriram Spandhana Residential: Mid-Market Bengaluru 7,85,419 5,39,802 October 30, 2006 - JDA (Area Share)

Shriram Srishti Residential: Mid-Market Bengaluru 2,18,576 1,55,189 December 23, 2006 71% JDA (Area Share)

Shriram Samruddhi Residential: Mid-Market Bengaluru 7,41,182 5,55,887 March 30, 2010 75% JDA (Area Share)

Shriram Adithya Residential: Affordable Bengaluru 2,29,271 1,44,670 December 10, 2010 63% JDA (Area Share)

Vijaya Hyyde Park (Villas) Residential: Luxury Coimbatore 96,705 58,023 January 11, 2011 60% JDA (Area Share)

Vijaya Hyyde Park (Apartments) Residential: Mid-Market Coimbatore 3,98,920 3,98,920 May 31, 2011 68% JV

Shriram Symphonye Residential: Mid-Market Bengaluru 3,53,313 3,53,313 June 2, 2011 100% Owned

Sai Shreyas Residential: Mid-Market Coimbatore 1,16,573 76,355 October 15, 2013 66% JDA (Area Share)

Sai Shreyas Residential: Villas -Luxury Coimbatore 1,17,564 70,538 October 15, 2013 60% JDA (Area Share)

Shriram Sahana Residential: Affordable Bengaluru 5,39,968 5,38,187 February 20, 2014 100% Owned

Shankari Residential: Affordable Coimbatore 1,61,560 1,26,017 March 31, 2014 78% JDA (Area Share)

Shriram Surabhi Residential: Affordable Bengaluru 5,32,104 5,10,627 November 14, 2014 51% JV

Shriram Suhana Residential: Mid-Market Bengaluru 7,65,900 7,39,585 August 28, 2017 99% Owned

Shriram Panorama Hills Block 4 Residential: Mid-Market Vishakhapatnam 6,92,017 5,40,047 September 10, 2016 - JDA (Area Share)

Shriram Smrithi Residential: Affordable Bengaluru 15,56,186 15,08,768 June 20, 2016 78%JDA (Revenue and Area Share)

Shriram Signiaa Residential: Mid-Market Bengaluru 5,00,600 4,95,800 March 31, 2017 67%JDA (Revenue Share)

Luxor Residential: Mid-Market Bengaluru 6,29,680 6,29,680 September 09, 2020 63%JDA (Revenue Share)

Shriram Gateway Commercial Chennai 20,33,904 20,33,904 April 19, 2018 Nil DM

Temple Bells (Shriram Shankari Phase 1 and Phase 2)Residential - Affordable Chennai 13,35,064 13,21,741 June 12, 2018 99% Owned

Chirping Woods Residential: Villas -Luxury Bengaluru 4,03,360 3,99,760 November 28, 2018 100% Owned

Chirping Woods Residential: Apartments

(Towers 1- 4) - Mid-Market

Bengaluru 6,48,785 6,41,760 July 29, 2019 100% Owned

Greenfield 1A Residential: Mid-Market Bengaluru 11,70,440 11,70,440 August 1, 2019 51% JV

Sameeksha Residential: Affordable Bengaluru 10,52,700 8,04,850 February 2, 2021 78% JDA (Area Share)

Total 1,67,64,496 1,50,38,489

Project Name Category Location Expected

Start Date

Expected

Completion Date

Estimated Total

Saleable Area (in sq

ft)

Ownership

Model

Shriram Hebbal One Commercial Bengaluru July 2022 March 2024 2,50,000 JDA

Shriram One City 1B Residential - Affordable Chennai December 2022 December 2025 5,15,140 Owned

Shriram Gateway Mall Commercial Chennai January 2023 March 2025 6,50,000 Owned

Shriram Divine City (Phase III) Residential: Mid-Market Chennai NA NA 8,57,080 DM

Bengal 6 million Residential - Affordable Kolkata April 2022 March 2027 60,00,000 Owned

Total 82,72,220




Exhibit 8: Overview of Forthcoming Projects *


Exhibit 9: Overview of Ongoing projects*


Land Reserves

In addition to the ongoing Projects, projects under development and forthcoming

projects, SPL has land reserves of ~197.5 acres, with a development potential of

~21.45 mn sq ft of estimated saleable Area as of September 30, 2021. Further, the

company has entered into an agreement for sale dated June 13, 2014 for an

additional 73.0 acres in Kolkata, West Bengal and intend to enter into a sale deed in

due course. Land reserves that SPL hold comprise lands for which sale deeds and

other instruments including long-term lease deeds have been executed and

registered in their favour.

Project Name Category Location

Estimated

Start Date

Estimated

Completion Date

Estimated Total

Saleable Area (in sq

ft)

Ownership

Interest Ownership Model

Kannur Commercial Bengaluru April 2022 March 2027 20,00,000 Nil DM

Kannur Residential: Apartments-

Mid-Market

Bengaluru April 2023 September 2026 10,00,000 Nil DM

One City (IC) Residential: Plots Chennai June 2022 March 2024 2,00,200 100% Owned

Sambhavi Residential: Villas - Luxury Bengaluru June 2022 March 2027 21,56,220 70% JDA (Area Share)

Sambhavi Residential: Plots Bengaluru June 2022 March 2027 21,56,220 70% JDA (Area Share)

Chandapura Residential: Plots Bengaluru June 2022 March 2025 7,18,740 Nil DM

Chandapura Residential: Rowhouses -

Mid-Market Premium

Bengaluru April 2023 March 2027 3,26,700 Nil DM

Chandapura Residential: Villas - Luxury Bengaluru June 2022 September 2025 6,53,400 Nil DM

Chandapura Residential: Apartments-

Mid-Market

Bengaluru September 2022 December 2026 29,40,300 Nil DM

Total 1,21,51,780

Project Name Category Locations Area (in sq ft)

Area Sold

(in sq ft)

Date of

Commencement

Certificate

Estimated Date of

Completion

Ownership

Model

Shriram Summitt Residential: Mid-Market Bengaluru 14,26,145 13,71,105 December 18, 2015 September 30, 2021* JDA (Area Share)

Shriram Suvilas (Garden of Joy) Residential: Mid-Market Bengaluru 1,99,176 1,15,165 April 18, 2017 April 1, 2022 DM

Shriram One City (1A) Residential: Affordable Chennai 1,19,698 1,19,698 June 1, 2015 August 31, 2022 Owned

Shriram One City (2) Residential: Plots Chennai 4,79,025 4,79,025 NA August 31, 2022 Owned

Shriram Greenfield (1B) Residential: Mid-Market Bengaluru 7,04,355 6,93,135 December 23, 2015 December 30, 2021 JV

Shriram Divine City Residential: Apartments-

Affordable

Chennai 15,40,982 3,54,190 NA NA DM

Shriram Divine City Residential: Rowhouses -

Luxury

Chennai 5,69,868 1,14,339 NA NA DM

Shriram Shreshta Residential: Villas - Mid-

Market

Coimbatore 5,43,570 1,96,640 November 1, 2014 December 31, 2022 JDA (Area Share)

Shriram Shreshta Residential: Apartments -

Affordable

Coimbatore 30,960 16,770 November 1, 2014 December 31, 2022 JDA (Area Share)

Shriram Blue Residential: Mid-Market Bengaluru 7,10,000 6,99,465 July 16, 2018 April 16, 2022 DM

Shriram Earth (Mysore Road ) Residential: Plots Bengaluru 4,90,066 4,77,131 NA July 19, 2022 DM

Shriram Panorama Hills (III, II, Villas and others) Residential: Mid-Market Vizag 44,55,371 15,99,977 NA December 31, 2022 JDA (Area Share)

Shriram Park 63 Residential: Mid-Market Chennai 20,43,615 13,50,860 March 16, 2016 January 22, 2023 Owned

Shriram Chirping Woods (Tower 5) Residential: Apartments -

Mid-Market

Bengaluru 2,20,740 2,06,360 November 30, 2019 June 30, 2023 Owned

Temple Bells (III, IV and Peace) (Shriram Shankari) Residential: Affordable Chennai 11,99,600 7,86,360 September 1, 2018 January 31, 2023 Owned

Shriram Grand One Residential: Affordable Kolkata 20,13,000 20,13,000 NA September 30, 2023 Owned

Shriram Liberty Square Residential: Mid-Market Bengaluru 5,84,780 4,39,749 NA November 14, 2024 JDA

Shriram Sunshine One Residential: Affordable Kolkata 23,06,040 6,34,144 November 13, 2019 March 31, 2024 JV

Shriram 107 South East Residential: Affordable Bengaluru 18,98,729 9,55,125 NA March 14, 2025 JV

Shriram Southern Crest Residential: Mid-Market

Premium

Bengaluru 6,40,495 5,25,020 November 11, 2020 October 21, 2025 JDA

Shriram WYTfield Residential: Mid-Market Bengaluru 11,02,955 4,74,420 NA November 26, 2025 JV

SLV Raynal Gardens Residential: Plots Bengaluru 3,90,043 3,26,282 NA NA DM

Elite Sai Gardens Phase 4 Residential: Plots Bengaluru 2,00,748 1,98,348 NA NA DM

Shriram Rainforest Residential: Plots Bengaluru 4,67,778 4,49,903 NA NA DM

Shriram Earth (Whitefield) Residential: Plots Bengaluru 1,09,454 93,050 NA February 14, 2022 JDA (Area Share)

Shriram Chirping Grove Residential: Luxury Bengaluru 4,94,555 1,78,279 August 5, 2019 July 10, 2026 DM

Suvilas II Residential: Mid-Market Bengaluru 6,54,424 1,27,788 March 19, 2021 March 31, 2026 DM

Shriram Westwoods Residential: Plots Bengaluru 4,97,790 3,70,156 NA NA DM

Eden-144 Residential: Plots Bengaluru 2,02,221 45,075 NA NA DM

Total 2,62,96,183 1,54,09,559




Competitive Strengths

Part of the Shriram Group and backed by Marquee Investors

SPL is a part of the Shriram Group, which is a prominent business group having four

decades of operating history in India and a well-recognized brand in the retail

financial services sector and several other industries. The group is funded by

marquee global and domestic financial investors across several of its businesses.

SPL also benefits from the trust and confidence that homebuyers, lenders, financial

investors, land-owners, development partners, contractors and other stakeholders

place in the Shriram Group. Also, its relationship with Shriram Group provides brand

recall and the ability to leverage its reputation among stakeholders in performing

business operations. Further, SPL has benefited from the strategic inputs and

support of reputed global and domestic financial investors. The company has

received foreign investment from investors commencing in May 2006, once the real

estate sector in India was opened to foreign direct investment, in March 2005. As of

September 30, 2021, 58.34% of its outstanding equity is owned by marquee

investors affiliated with TPG, Tata Opportunities Fund, Walton Street Capital and

Starwood.

One of the leading residential real estate development

companies in South India

SPL is one of the leading residential real estate development companies in South

India, primarily focused on the mid-market and affordable housing categories. The

company is also among the five largest residential real estate companies in South

India in terms of number of units launched between CY15 and Q3 CY21 across Tier 1

cities of South India (Source: JLL). Its completed projects in the cities of Bengaluru

and Chennai accounted for 15.18 mn sq ft, or 90.56% of total saleable area in

completed projects, as of September 30, 2021. In addition, ongoing projects, projects

under development and forthcoming projects in Bengaluru and Chennai accounted

for 31.37 mn sq ft, or 67.15% of total estimated saleable area in these projects.

Further, over the years, SPL has focused on the mid-market and affordable housing

categories. As of September 30, 2021, completed projects in mid-market category

and affordable housing category accounted for 8.62 mn sq ft and 5.41 mn sq ft or

51.44% and 32.25%, respectively, of total saleable area for completed projects.

Additionally, the company has a portfolio of 16 Ongoing Projects, 3 Projects under

Development and 1 Forthcoming Project in the mid-market category and affordable

housing category, aggregating to 16.67 mn sq ft and 16.73 mn sq ft in the mid-market

category and affordable housing category, respectively, or 35.67% and 35.80%,

respectively, of estimated total saleable area. The company believes that its strong

brand and reputation, development track record, industry knowledge and know-how

of the regulatory environment in key cities in South India and in chosen real estate

categories has led to a position of market leadership. Going forward, the company is

likely to benefit from the expected growth in South India and the mid-market and

affordable housing categories backed by business model which combines

operational efficiency, customer-insights, local knowledge and expertise.

Demonstrated capabilities in project identification and strong

execution track record

SPL has realized pre-sales volumes of 1.56 mn sq ft of saleable area or 1,260 units,

3.00 mn sq ft of saleable area or 2,525 units, 3.25 mn sq ft of saleable area or 2,873

units, and 3.56 mn sq ft of saleable area or 3,469 units for the H1 FY22, FY21, FY20,

and FY19 respectively. Its pre-sales volumes grew at CAGR of 22.61% between FY17-

21. The company has also been able to strengthen its market position amidst

consolidating industry environment since demonetisation in 2016 and introduction of

RERA in 2017 (Source: JLL). Its revenue from sale of constructed properties for H1

FY22, FY21 and FY20, and FY19 was ₹85.9 crore, ₹286.8 crore, ₹426.3 crore, and

₹554.6 crore, respectively. The company believes that its strong brand recall, track

record of quality execution and deliveries have been instrumental in sales and

performance.

SPL has been able to complete and deliver seven projects with aggregate saleable

area of 8.04 mn sq ft during FY18 and H1 FY22. Overall execution timelines have

improved consistently over the years benefiting from improvements in project

management and control, technology and automation as well as strengthened




implementation and monitoring. In order to achieve timely development of projects,

the company rely on project engineering, design and procurement teams, of 167

employees in aggregate, as of September 30, 2021, including to manage regulatory

approvals and tracks project timelines and costs. It also ensures control on the

quality of construction and realize synergies in procuring construction materials and

equipment. Additionally, the company has instituted a detailed management

information system which tracks project related key performance indicators on a

monthly basis, enabling project management, implementation and monitoring.

Established strategic relationships

SPL has established relationships with domestic as well as international financial

investors, from whom the company has been able to procure financial investments

for their projects. Investors include SUN Apollo India Real Estate Fund I LLC,

Mitsubishi Corporation, Amplus Capital Advisors, ASK Real Estate Special

Opportunities Fund, India Realty Excellence Fund II LLP managed by Motilal Oswal

Real Estate Investment Advisors II Pvt Ltd and Kotak Affordable India Fund, and

include certain investors who have made multiple investments in completed and

ongoing Projects. This approach has enabled company to raise capital through

investments from financial investors in order to fund growth, expand the scale of

projects and reduce debt exposure, while also benefitting from the know-how and

strategic inputs of such investors. Other than its strong association with investors,

the company also has well-established relationships with several lenders, including

public and private sector banks and NBFCs.

Further, a significant portion of SPL’s projects are developed through joint-

development agreements or joint ventures. As of September 30, 2021, 23 out of 29

Completed Projects covering a Saleable Area of 10.68 mn sq ft are through joint

development agreements or joint-ventures. Similarly, 12 out of 35 of Ongoing

Projects, Projects under Development and Forthcoming Projects, covering an

estimated Saleable Area of 18.23 mn sq ft are owned through joint development

agreements or joint-ventures. As a result of this strategy, the company has been

able to reduce up-front costs for land acquisition while leveraging brand name.

Scalable and asset light business model

SPL’s business model relies on the strength of their brand, project execution and

management capabilities as well as well-established relationships with landowners,

development partners, financial investors, architects and contractors. Leveraging

these capabilities and relationships, the company is transitioning from a real estate

development model to a combination of real estate development and real estate

services based business model. The company believes this transition will help them

to improve margins and profitability as well as return on capital, given low capital-

intensive nature of newer business model. As part of this model, its focus is on DM

or joint development agreements with landowners/developers or joint ventures,

which requires lower upfront capital expenditure compared to direct acquisition of

real estate or land parcels.

SPL believes that its asset light business model to result in efficient utilisation of

capital resulting in lower debt and regular fee income, allowing it to have higher

return on capital employed. For example, its net debt i.e. total borrowings net of cash

and cash equivalents, other bank balances and current investments (non-GAAP

measure) to equity ratio as of September 30, 2021, March 31, 2021, March 31, 2020

and March 31, 2019 was 0.85, 0.78, 0.73 and 0.62, respectively, allowing to seek

further debt financing, as required. The company also expect the asset light nature of

business model to allow them to minimize costs incurred initially. Additionally, its

focus on DM model and commitment to leverage its brand, project execution and

management capabilities, will continue to contribute to the growth and development

of business.




Well positioned to benefit from regulatory and industry

developments

The Real Estate (Regulation and Development) Act, 2016 (RERA) became effective in

May 2017, pursuant to which all projects that meet specified criteria are to be

registered with the relevant RERA authority. The implementation of the RERA has

resulted in increased compliance requirements for real estate projects which require

both expertise and business volumes, for long-term sustainability. These regulations

and resultant increase in compliance risks provide a growth opportunity for larger

and well-established real estate developers and establish barriers to entry for smaller

real estate developers. Smaller developers having relatively larger debt exposure are

facing liquidity constraints, as post implementation of RERA, pre-launches and

advances from pre-sales cannot be used to cover approvals, preliminary and

preoperative costs, and are to be borne by the developers.

Due to the increased compliance and regulatory risk, home-buyers prefer to invest

with larger and well-established developers, which have the capability of fulfilling the

increased regulatory requirements. Similarly, lenders and other financial institutions

prefer to extend financing to such well-established developers to manage their risk

exposure. RERA has resulted in the consolidation of the real estate industry and an

increase in the market share of larger developers with long-term presence, and

strong brand, financial and execution capabilities, which are required to meet

compliance requirements stipulated under RERA. (Source: JLL). SPL believes that

leveraging on its industry position, scale of operations, experience and efficient

project management systems and processes, and ability to comply with

requirements relating to cash flows, project delivery and regulatory disclosures, the

company is well positioned to benefit from the opportunity presented by the

introduction of RERA and the expected consolidation in the real estate industry in

India.

Key strategies

Continued focus on mid-market and affordable housing

categories

SPL intends to strengthen its reputation and track record in the mid-market and

affordable housing categories, in order to deliver cost effective housing solutions to

its customers. Also, the company intends to evaluate new opportunities in the mid-

market and affordable housing categories in its core markets, which is likely to

provide opportunities for growth and increased returns, while also exploring

opportunities in the senior living and the hospitality real estate categories.

Continued focus on key cities in South India

SPL intends to continue to focus on key cities, such as Bengaluru and Chennai,

where it has established a strong presence and developed in depth local knowledge

and relationships. The company believes that metropolitan cities such as Bengaluru

and Chennai provides a significant opportunity to market the projects. Its strong

competitive position, industry knowledge and regulatory environment know-how in

these cities is likely to enable them to benefit from the expected increased real estate

demand in line with the growth of these cities. The company intends to use expertise

and know-how to identify opportunities in areas in these cities. As of September 30,

2021, the company has 22 projects or 16.95 mn sq ft of estimated saleable area in

Ongoing Projects, 4 projects or 2.27 mn sq ft of estimated Saleable Area in Projects

under Development and 4 projects or 12.15 mn sq ft of estimated Saleable Area in

Forthcoming Projects in Bengaluru and Chennai, in aggregate. Further, SPL will

continue to evaluate growth opportunities outside these cities on a case-by-case

basis although the cities having existing presence remain company’s primary focus.




Strengthen presence in the plotted development category

In December 2018, SPL has ventured into plotted development under the brand

extension ‘Shriram Earth’. Its maiden plotted development project was called

‘Shriram Earth - Mysore Road’, under the DM model. Since then, it has launched

eight more projects, comprising of six projects under the DM model, one project

under the owned development arrangement and one project under the owned

development category. The total area launched for these projects is ~2.84 mn sq ft

out of which company has sold 2.54 mn sq ft (~ 89.53% of Saleable Area) as of

September 30, 2021. The company has decided to venture into this vertical as its

core markets present a significant new opportunity and thus focused on building a

mix of projects with a quick turnaround time and faster returns.

Focus on asset light business model, primarily through

development management

SPL intends to remain focused on transition from a real estate development model to

a combination of real estate development and real estate services based business

model in order to grow its fee income while reducing capital investments, and

improve return on capital. While continuing to enter into joint development

agreements with landowners or joint ventures, which requires lower upfront capital

expenditure, the company intends to increase its fee income and revenues from DM

business. As of September 30, 2021, 14 out of 35 projects aggregating to 31.92% of

total estimated Saleable Area in Ongoing Projects, Projects under Development and

Forthcoming Projects are under DM business. It intends to continue to enter into DM

agreements with landowners and other real estate developers and provide additional

project development services. The increased focus on DM business enables them to

lower the project development related risks such as delay in acquisition of land and

generate increased return from capital deployed. In line with these, the company has

developed a commercial building at an SEZ in Chennai, of 2.03 mn sq ft of Saleable

Area, for which it received DM fees. Additionally, the company has launched 11

projects with a saleable area of 6.42 mn sq ft under the DM model as of September

30, 2021. In addition, it has commenced development operations in 12 residential

projects under the DM model, including 11 Ongoing Projects and one Project under

Development.

Develop and monetize project in Kolkata

SPL has expanded its presence to Kolkata by leveraging on land reserves in the city

and are among the four largest residential real estate companies in Kolkata in terms

of number of residential units launched between CY15 to Q3 CY21 (Source: JLL). The

company owns a land parcel of 314 acres located at Uttarpara (Kolkata), intends to

use for development of an integrated township project, ‘Shriram Grand City’. In

addition, the company has entered into an agreement for sale for acquiring ~73

acres in the same location, of which it intends to use ~25 acres of land for

development of roads and associated infrastructure for the proposed integrated

township project. The land parcel of 314 acres has an aggregate development

potential of about 33.54 mn sq ft of estimated Saleable Area.

As of September 30, 2021, SPL has obtained approval for development of 26.42 mn

sq ft of residential area and 7.12 mn sq ft of non-residential area. In addition to 4.32

mn sq ft of Ongoing Projects and 6 mn sq ft of Projects under Development, 21.45

mn sq ft of estimated Saleable Area is also intended to be in the mid-market and

affordable housing category and commercial developments. The company has a

dedicated team focused on this project, and 98 employees are based out of Kolkata

and work exclusively on this project in close coordination with rest of teams. The

development of this land parcel in Kolkata will continue to have a prominent focus in

business strategy.




Build scale, consolidate position and enhance execution

capabilities to capitalize on industry opportunity

Leveraging existing experience and enhanced capabilities, SPL believes that it will be

able to capitalize on the consolidation of the real estate industry and projected

increase in the market share of larger developers with strong execution and financial

capabilities. The company intends to continue its growth strategy to build scale and

consolidate leadership in core markets through focused efforts on sales and

marketing and customer service, as well as efforts to manage costs efficiently. It

intends to further scale-up and enhance execution and in-house capabilities for

project planning and monitoring. For example, the company has grown employees

from 521 as of March 31, 2018 to 647 as of September 30, 2021. Over the past 3

years, it has also focused on increasing the efficiency of personnel by reorganizing

sales and marketing team and growing the team from 214 as of March 31, 2018 to

333 as of September 30, 2021. strengthened business development and project

execution teams and implemented systems and processes for improved project

management and construction monitoring. Further, it seeks to supplement employee

base by recruiting talented and qualified personnel and increasing the efficiency of

existing employees by conducting trainings in relation to new project management

processes and technologies.

Continued focus on relationships with financial investors

SPL intends to continue to enter into arrangements with financial investors aimed at

leveraging the strength of current business model and existing strong relationships

with reputed financial investors. As part of this strategy, it has entered into strategic

relationships with financial investors for development of investment platforms

arrangements, which include a capital commitment towards projects that meet

specified and agreed upon criteria. For example, the company has entered into

partnership with Kotak Affordable India Fund (a joint investment vehicle focused on

investing into affordable housing projects between CDC of UK and Kotak Alternative

Investment Managers) wherein it has secured capital from fund towards 50%

economic interest in Sunshine One (formerly known as Shriram Grand-2), as part of

project in Kolkata. Similarly, it has entered into economic interest / equity partnership

with Mitsubishi Corporation for Project Shriram Park 63 at Chennai. The company

proposes to leverage such arrangements to reduce capital exposure by sharing risk

and rewards with financial investors.

Peers Analysis

The real estate development industry in India, while fragmented, is highly

competitive. Among the few organized entities in this sector, SPL’s chief competitors

in South India are large developers such as Prestige Estates Project Ltd, Brigade

Enterprises, Embassy Group, Puravankara Projects, RMZ Corp and Sobha

Developers.

Exhibit 10: Comparison with listed industry peers*

Source: ICICI Direct Research, RHP

* Financial information is derived from the Restated Consolidated Financial Information as at and for the year ended March 31, 2021; P/E ratio is calculated as per closing share price as on

November 18, 2021 on BSE

Name of the company Total Income (₹ in crore) Face Value

(₹)

P/E (x) EPS (Basic) (₹) RoNW (% ) NAV (₹)

Shriram Properties Ltd* 501.3 10 - (5) NA 56.4

Sobha Ltd 2,190.4 10 133 7 3 256.0

Prestige Estates Projects Ltd 7,501.8 10 13 36 23 166.5

Brigade Enterprises Ltd 2,010.4 10 NA (2) NA 111.3

Godrej Properties Ltd 1,333.1 5 NA (7) NA 299.3

Oberoi Realty Ltd 2,090.6 10 45 20 8 257.7

Sunteck Realty Ltd 630.8 1 161 3 1 19.8




Key risks and concerns

Real estate development activities are geographically

concentrated in key cities in South India

SPL’s real estate development activities are geographically concentrated in the cities

of Bengaluru, Chennai, Vishakhapatnam and Coimbatore, which are located in South

India. As of September 30, 2021, 24 Ongoing Projects, 4 Projects under Development

and 4 Forthcoming Projects, representing 77.91% of estimated saleable area for

ongoing projects, projects under development and forthcoming projects, are located

in South India. With higher concentration of business in South India, SPL’s

performance may get impacted in case of slowdown or any uncertain events in the

real estate market.

Dependent on the benefits arising from its relationship with

Promoters and the Shriram Group and the “Shriram” brand

SPL benefits from its relationship with Promoters and the Shriram Group in many

ways, such as their reputation, experience and knowledge of the real estate and

property development industry. The company believes that its customers, vendors

and members of the financial community perceive the ‘Shriram’ brand to be that of a

trusted provider of quality products and services. The ‘Shriram’ brand has been

licensed by the Shriram Value Services Limited (SVS) through a brand licensing

agreement dated April 29, 2011 and Deed of Novation cum Amendment dated May

24, 2019 to the Branding License Agreement. In consideration for the license granted,

the company was paying a license fee. In the event the license is terminated, the

company is required to change its corporate name, and remove references to the

Shriram brand within a period of 60 days. In future, if the company cease to benefit

from these relationships for any reason, its business and growth prospects may

decline. Further, negative publicity of the brand due to actions of Promoters or other

members of the Shriram Group could adversely affect its business and financial

condition.

Company has pledged equity shares of certain subsidiaries in

favour of their respective lenders

SPL has pledged equity shares of certain subsidiaries in favour of certain lenders to

secure loan facilities availed SPL and certain of its subsidiaries which includes a)

100% of the equity in SPL Estates in favour of Axis Trustees Ltd, b) 100% of the paid

up equity share capital of Shriprop Projects in favour of Vistra ITCL (India) Ltd, c)

100% of the equity in Shriprop Developers in favour of ECL Finance Ltd, and d) SPL

Towers, has recently entered into a term loan arrangement with Tata Capital Housing

Finance Ltd, under which the company entered into a pledge agreement to pledge all

of its shareholding in SPL Towers. Any default or breach under the financing

agreements pursuant to which such securities have been pledged will entitle the

lenders to enforce the pledge over such collateral and take ownership of the

collateral and/or to sell the pledged equity shares to third parties.

COVID-19 disease may affect business and operations

COVID-19 spread to a majority of countries across the world, including India, in CY20.

The World Health Organization declared the outbreak of COVID-19 to be a public

health emergency of international concern on January 30, 2020, and a global

pandemic on March 11, 2020. The COVID-19 pandemic may affect company’s

business, results of operations and financial condition, in the future, in a number of

ways which includes delays in the completion of construction of properties on

account of the lockdown and work stoppages, affecting ability of customers to visit

sales offices and undertake in-person discussions, inability to access capital on

commercially acceptable terms and company’s ability to execute growth strategies

and identify and complete acquisitions.




Financial summary

Exhibit 10: Profit and loss statement | crore

Source: RHP, ICICI Direct Research

Exhibit 11: Cash flow statement | crore


Exhibit 12: Balance sheet | crore


Exhibit 13: Key ratios

es

Source: RHP, ICICI Direct Research; # Post IPO, * Annualized for FY22

(Year-end March) FY19 FY20 FY21 H1 FY22

Net Sales 650.1 572.0 431.5 118.2

Material Consumed 485.4 352.4 238.7 60.3

Employee benefit expenses 78.3 84.8 63.4 34.5

Other expenses 79.4 102.3 55.5 23.1

Total operating expenditure 643.2 539.4 357.6 118.0

EBITDA 6.9 32.5 73.9 0.2

EBITDA Margins (%) 1.1 5.7 17.1 0.2

Depreciation 5.9 8.4 29.2 3.5

Other income 73.6 59.9 69.8 37.0

Interest 105.1 123.2 125.3 63.9

Share of P/L in JV (Net of Tax) -9.0 -40.9 -33.2 -18.4

PBT -39.5 -80.1 -44.0 -48.7

Taxes 34.1 4.7 23.0 7.3

Extraordinary Items 122.4 -1.5 -1.2 -4.0

PAT 48.8 -86.4 -68.2 -60.0


Profit Before Tax 82.9 -81.7 -45.2 -52.7

Add: Depreciation 5.3 6.4 6.6 3.4

Add: Finance Cost 105.1 123.2 125.3 63.9

Others -185.2 2.6 -11.6 -17.1

Net (Increase)/decrease in WC -163.0 88.5 73.7 57.1

Tax Paid -24.4 -10.0 -1.2 0.3

CF from operating activities -179.2 129.1 147.6 55.0

(Inc)/dec in Fixed Assets -40.7 -16.6 -1.4 -0.4

Others 214.5 109.4 8.8 -6.8

CF from Investing activities 173.9 92.8 7.4 -7.2

Inc/(Dec) in Equity 0.0 0.0 0.0 0.0

Inc/(Dec) in Borrowings 70.4 -181.8 -42.0 -34.2

Others -78.9 -38.4 -76.6 -53.0

CF from financing activities -8.5 -220.2 -118.5 -87.2

Net Cash flow -13.9 1.7 36.5 -39.4

Opening Cash 54.9 41.0 42.8 79.2

Closing Cash 41.0 42.8 79.2 39.9


Equity Capital 148.1 148.1 148.1 148.1

Reserve and Surplus 831.6 756.3 689.4 620.7

Total Shareholders fund 979.7 904.5 837.5 768.8

Total Debt 845.7 737.2 727.2 695.1

Minority Interest -10.1 -10.4 -10.3 -2.0

Deferred Tax Liability 18.1 14.8 15.8 14.9

Non Current Liabilities and provisions 95.9 65.6 36.5 39.0

Sources of Funds 1,929.3 1,711.7 1,606.8 1,515.8

Net Fixed Assets 48.9 67.1 61.4 58.8

Capital WIP 6.4 0.0 0.0 0.0

Intangible assets 12.6 13.9 14.2 13.9

Investments 191.0 40.2 1.4 1.4

Inventory 1,925.0 2,092.1 2,026.1 2,062.6

Cash & Bank Balances 56.0 44.5 81.4 42.2

Sundry Debtors 209.5 164.6 132.4 108.2

Loans and advances and other CA 467.9 543.1 597.4 686.6

Total Current Assets 2,849.5 2,884.5 2,838.7 2,900.9

Creditors 137.6 141.0 144.9 144.0

Provisions and Orher CL 1,298.8 1,564.6 1,547.9 1,633.6

Total Current Liabilities 1,436.3 1,705.6 1,692.7 1,777.6

Net Current Assets 1,413.2 1,179.0 1,146.0 1,123.3

LTL & A, other Assets 448.3 451.7 385.1 319.7

Application of Funds 1,929.3 1,711.7 1,606.8 1,515.8


Per Share data (|) #

Diluted EPS 2.9 -5.1 -4.0 -3.5

Cash EPS 3.2 -4.6 -2.3 -3.3

BV 57.9 53.4 49.5 45.4

Cash Per Share 3.3 2.6 4.8 2.5

Operating Ratios (% )

EBITDA margins 1.1 5.7 17.1 0.2

PBT margins 0.1 -0.1 -0.1 -0.4

Net Profit margins 7.5 -15.1 -15.8 -50.8

Inventory days* 1,080.8 1,335.1 1,713.8 3,185.3

Debtor days* 117.6 105.0 112.0 167.1

Creditor days* 77.2 89.9 122.5 222.4

Return Ratios (% )*

RoE 5.0 NA NA NA

RoCE 3.9 4.9 7.1 4.4

Valuation Ratios (x)*#

P/E 40.9 NA NA NA

EV/EBITDA 374.1 81.5 35.8 NA

EV/Sales 4.0 4.6 6.1 11.2

Mcap/Sales 3.1 3.5 4.6 8.5

Price to Book Value 2.0 2.2 2.4 2.6

Solvency Ratios

Debt/Equity 0.9 0.8 0.9 0.9

Debt/EBITDA* 121.8 22.7 9.8 -

Current Ratio 1.8 1.6 1.6 1.6

Quick Ratio 0.5 0.4 0.4 0.4




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Subscribe: Apply for the IPO

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Pankaj Pandey Head – Research [email protected]

ICICI Direct Research Desk,

ICICI Securities Limited,

1st Floor, Akruti Trade Centre,

Road No 7, MIDC,

Andheri (East)

Mumbai – 400 093

[email protected]




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Shriram Properties - ICICI Direct

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