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Shares of Mumbai-based Macrotech Developers, earlier known as Lodha Developers, have rallied 29% and are trading around Rs 625. The real estate developer came up with its Rs 2,500-crore initial public offering (IPO) in April with an issue price of Rs 486. The issue was subscribed 1.36 times.
The developer will use the IPO proceeds to pay off some debts and bring down its debt to Rs 12,000 crore level at the end of this April-June from around Rs 16,000 crore at the end of FY21 and aims to be debt-free by the financial year 2024.
Despite the rally, brokerages are of the opinion that the stock has a potential upside of 28% and can touch Rs 800 in the near term.
Brokerage view
ICICI Securities has initiated coverage on Macrotech Developers with a target price of Rs 800. The brokerage house is of the opinion that the company can easily clock Rs 30,000 crore of cumulative sales value over FY22-24E and generate a post-tax operating surplus of Rs 12,100 crore over the same period. The robust cash flows combined with inflows of Rs 4,000 crore from IPO/promoter debt repayment in H1FY22 is estimated to enable the company to significantly reduce India business net debt to Rs 3,700 crore by FY24E from Rs 16,100 crore in FY21.
“1x of March 2022 discounted cash flow based net asset value of Rs 35,800 crore. Its Gross Asset Value (GAV) of Rs 45,800 crore includes Rs 32,400 crore for FY23-30E post-tax- Free cash flow to the firm, Rs 11,400 crore for company’s land back of 3,800 acres (25% discount to market value) and Rs 2,000 crore of UK project surplus. Adjusted for FY22E India business net debt of Rs 10,100 crore, we arrive at net asset value of Rs 35,800 crore. The net asset value excludes value accretion from potential joint development agreements in FY22-23E,” said Abhidev Chattopadhyay, Vice President – Real Estate, Hotels and Infrastructure at ICICI Securities.
Likewise, JPMorgan has also initiated coverage on the stock with a price target of Rs 720. As it views Macrotech as a sales compounder having grown both in market share (#1 in Mumbai Metro Region) and bookings over FY11-20 (a 7% CAGR), and through a downcycle.
The global investment advisory firm believes that the company is poised to capture upside as the cycle turns and its middle-income housing focus differentiates it from a peer group that has struggled to grow in this segment. They expect accelerated deleveraging from inventory monetization and foresee multiples moving up on de-risking of balance sheet and improving the strength of the residential cycle.
“An asset-turn metric is relevant for a pre-sales compounder like Macrotech. The price target of Rs 720 is based on an average of price to earnings ratio, discounted cash flow, and free cash flow multiple methodology. The discounted cash flow valuation discounts industrial and residential land bank at 30-50% of market value,” said JP Morgan in a note.
(Disclaimer: The recommendations in this story are by the respective research and brokerage firm. Money9 & its management do not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)