Shriram Properties IPO: Information analysis

Incorporated in 2000, Shriram Properties is one of the leading residential real-estate developers with its focus on the mid-market and affordable-housing segments in South India. It is one of the top five residential real-estate companies in terms of the number of units launched between the calendar year 2012 and the third quarter of 2021 across the tier-1 cities of South India, including Bengaluru, Chennai and Hyderabad. Besides, the company also has a presence in the mid-premium and luxury-housing segments, as well as commercial and office spaces.

As on September 30, 2021, it completed 29 projects with a saleable area of 16.76 million sq. ft. Out of these projects, 24 were in Bengaluru and Chennai and accounted for 90.56 per cent of the company's total saleable area. Interestingly, these two cities are one of the key residential markets in India, accounting for 29.3 per cent of the total launches since 2012 and almost 28.7 per cent of the total inventory sold in India. Therefore, it is a key advantage for the company. At present, Shriram Properties has a portfolio of 35 ongoing projects which are at various stages of development, with an estimated saleable area of 46.72 million sq. ft. Apart from this, it has land reserves of approximately 197.47 acres, with a development potential of 21.45 million sq. ft.

Over the years, the company has been moving to the development and services-based model from the real-estate development model. This means that in addition to its owned projects, the company is also venturing into developing projects through joint ventures. This will help it reduce debt and adopt an asset-light model.

Strengths

• It is a part of Shriram Group which has an operating history of more than 40 years in India with a presence in many industries such as transport and housing financing, insurance and wealth management, to name a few.
• Its main two segments, the mid-market and affordable housing, have accounted for the maximum share of market absorption in India. According to a JLL report, both the segments accounted for 75 per cent of the overall residential unit absorption in 2020.
• The company has a strong execution track record. Its pre-sales volumes grew at a CAGR of 22.6 per cent during FY17-FY21. Also, demonetisation in 2016, as well as the introduction of RERA in 2017, strengthened the position of large and organised market players in the industry.

Risks

• Uncertainties related to the pandemic have affected the sales of the real-estate companies and any further disruptions can adversely affect their operations.
• The company has given financial guarantees to a tune of Rs 936 crore, which, if invoked, can affect its financial position.
• It relies on independent contractors to execute its projects, which can affect the quality and timeliness of the construction work.
• There are several litigation cases against the company and its subsidiaries.

Also, read about Shriram Properties IPO: How good is it? to learn how we evaluate the company on various metrics.