Why ULIP mis-selling has become rampant ?

Macrotech Developers, which was dumped by many investors on listing day, has been buzzing on Dalal Street, trumping other major players in the BSE Real Estate index. Shares of the company have gained around 66% to Rs 809 on July 22 (at 11.30 am) against the issue price of Rs 486. The scrip was listed at a discount of around 10% on April 19. On the other hand, other real estate majors like Brigade Enterprises, DLF, Godrej Properties, Oberoi Realty, Prestige Estates, Sobha, Sunteck Realty and The Phoenix Mills have gained between 15%-42% during the same period. However, Indiabulls Real Estate emerged as the only company which jumped more than 100% during the same period.

Factors 

Market watchers believe that Macrotech Developers (Lodha) is the best play on the Mumbai residential property upturn as it builds on its market leadership. Aggressive portfolio churn, pragmatic land-bank monetisation and listing-triggered deleveraging should boost its ability to replenish its premium land bank. Global brokerage firm Jefferies believes that market consolidation and Lodha’s branding skills should also help achieve the company’s sales ambitions.

Latest updates

Macrotech Developers, which got listed on the stock exchanges after a successful launch of Rs 2,500 crore IPO, on July 8 said the company witnessed an 88% growth in its sales bookings at Rs 957 crore for the quarter ended June despite the second wave of Covid-19 pandemic.

Total collections increased by 346% YoY to Rs 1,714 crore. However, the figure is lower by 18% on a quarter-on-quarter basis.

“We had pre-sales in 1QFY22 totalling Rs 957 crore. While April and May had very limited pre-sales on account of the 2nd Covid wave in India, June saw pre-sales of Rs 654 crore,” the company said adding subject to no further Covid related disruptions, we are on track to meet our pre-sales guidance previously communicated.

The company also managed to reduce its debt by Rs 3,600 crore for the quarter. Lodha is predominantly present in the Mumbai Metropolitan Region (MMR) that boasts of annual sales of 1,19,000 units (FY2021), around 28% of the overall sales in FY2021 (by units) in India.

Brokerage views

Kotak Institutional Equities initiated its coverage on Macrotech Developers with a price target of Rs 900.

“Lodha’s scale of operations, strong sales and marketing machinery, execution capabilities for quick project turnaround, coupled with a large land bank, best position it to capitalise on the increasing consolidation in India’s real estate market,” the brokerage said.

Lodha is one of the leading developers by residential sales value (Rs 6,000 crore in FY2021) with a presence across price spectrums in the largest metropolitan city in India.

Kotak further added that the company will continue to benefit from a large inventory of ongoing and completed projects (20 mn sq ft) and future project launches (37 mn sq ft) in the residential space as well as diversification into new areas of industrial warehousing, commercial offices and retail malls that will facilitate aggressive de-leveraging of the balance sheet.

Market experts believe that increased regulatory vigilance through the introduction of RERA and GST, economic shocks in the form of demonetisation, the financial liquidity crisis as well as the current pandemic have hastened the pace of consolidation in the industry. This will benefit branded players going ahead.

Jefferies in June said that Macrotech Developers can hit Rs 800, which has achieved by the scrip this month. It further added that the stock can hit Rs 950 in the bull case scenario on the downside it can hit Rs 600.

“Lodha’s IPO marks a significant turning point in its financing ability. Its recent credit rating upgrade demonstrates progress. Also, accelerated land monetisation of the large land bank boosts operational cash surplus. We expect pre-sales to rise 38% YoY in FY22E to Rs 8,200 crore and as project additions get announced we believe the over Rs 10,000 crore target will be achievable,” the brokerage said.

Key risks

Company-specific risks arise from Lodha’s single city concentration in Mumbai. Delay in construction, increasing competition and inability to increase the number of projects across markets might impact operational and growth dynamics of Macrotech Developers.