As Suraj Developers Plans to Raise 400 Cr, it Remains Focussed on Revenue Growth

Mumbai based Real estate firm Suraj Estate Developers, headquartered in Mumbai, intends to raise 400 crore via a new offering of shares on the primary market. The residential and commercial enterprise intends to utilise ₹285 crore towards the repayment of both its own and its subsidiaries' debt. Additionally, 35 crore is intended to be spent on the procurement of land or land development rights by the company.

The promoter group's stake will decrease from 100% to 75% subsequent to the IPO. In the case of a reduced scale of operations, investors may exercise patience and evaluate the company's ability to maintain the rate of revenue expansion while also determining how well it competes with its larger industry counterparts. Therefore, investors would be best served to consider secondary market investments in the company.

The Commercial Sector

South Central Mumbai (SCM), comprising Mahim, Matunga, Dadar, Prabhadevi, and Parel, is the company's primary market. More than 10 lakh square feet have been devoted to the completion of its 42 initiatives.The organisation adheres to three fundamental models within the residential sector.

One is the asset lite model, which involves the delegation of construction tasks to an external contractor.It also redevelops existing structures and purchases vacant land as an alternative business model. It operates as a niche participant in the third business segment. The company, which operates in the commercial and residential sectors, intends to repay debt in the redevelopment of tenanted properties in the Mumbai area in accordance with Regulation 33 (7) of the Development Control and Promotion Regulations (DCPR) with 285 crore.

This works in the company's favour, as redevelopment initiatives comprise the majority of the property in SCM. The company has successfully built ICICI Apartments, NEAT House, Saraswat Bank Bhavan, and CCIL Bhavan in the commercial sector. Presently, thirteen initiatives totaling over twenty lakh square feet are being developed by the organisation. Furthermore, over the next seventeen years, the organisation intends to complete sixteen initiatives totaling over seventy thousand square feet of carpet area.

Financials (FINANCIALS)

Over the course of the three years leading up to FY23, the organisation experienced a substantial increase in net profit from ₹6.2 crore to ₹307.8 crore, a growth from ₹243.9 crore. EBITDA margin, or operating margin prior to depreciation and amortisation, fluctuated between 36% and 50% throughout the period. Since FY21, return on capital employed (RoCE) has increased from 14.5% to 21.9% in FY23.

Assessing Value

The issue carries a price-to-earnings (P/E) multiple of up to 27.5 when entirely diluted equity subsequent to the IPO is accounted for. Based on Bloomberg data, the average price-to-earnings (P/E) ratio of real estate corporations comprising the Nifty Realty Index is estimated to be between 40 and 50, with respect to earnings for FY24 and FY25.