Macrotech Developers’ IPO has low home loan interest rate playing in its favour — but high debt and COVID-19 pandemic cloud its prospects

• Macrotech Developers, formerly known as Lodha Developers, is ready to go public after over a decade, even as uncertainty looms over the realty sector.
• The biggest risk factor with the company is its high debt.
• It is uncertain how the COVID-19 pandemic will play out and if the company will be able to raise funding in a capital intensive industry that’s witnessing a slowdown.

It has taken one of the largest real estate players in India, Macrotech Developers — formerly known as Lodha Developers — over a decade to get to this point, but the company is finally going public.

The company’s core business is focused on building residential developments, which is good news since home loan interest rates in the country have been falling for the last five years.

As of 2:00 pm on April 7, the Macro Developers' IPO was subscribed to 0.24 times.


“Home loan interest rates in India have been the lowest in the past couple of years and this has led to a significant recovery in transactions in all classes of housing — affordable, mid segment and luxury,” said Rohit Poddar, managing director of Poddar Housing and Development — a listed competitor to Macrotech.

However, the realty sector is one of the worst hit by the pandemic. And, according to analysts, the industry is facing its worst slowdown in the last five years. This risk is compounded by the fact that Macrotech Developers also has high indebtedness, which will partially be financed by the funds it raises from its ₹2,500 crore initial public offering (IPO).

Considering that most of the company's projects are based out of the Mumbai Metro Region (MMR), its debt may be a cause for concern. The capital intensive and high indebtedness should be a hurdle when looking for further financing. “The high leverage ratio limits the scope of the company to absorb any shocks of unforeseen events,” said Capital Market in its review.

Others, like Reliance Securities, believe that while there are risk factors involved, the IPO seems to be reasonably priced as compared to its competitors, like Godrej Properties and DLF, at a price band of ₹482 to ₹486.

It opines that despite the debt and the market outlook, Macrotech Developers has some big projects in the pipeline. “Moreover, its return ratio looks to be superior compared to peers,” said the review.

The ₹2,500 crore initial public offering (IPO) has been a long time coming

The company got the green light from the Securities and Exchange Board of India (SEBI) in 2009 and again in 2018, but shelved its plans for an IPO citing that the market was not ideal for the launch.

Over ten years later, even with the threat of COVID 19 looming over markets and the realty sector surrounded in uncertainty, the Marcotech management believes that its IPO can persevere. This is slated to be the first IPO of the financial year 2021-22.

Macrotech Developers’ high debt

The money that the realty firm raises from its IPO will partially be used to repay the company’s borrowings. The rest shall be used for land acquisition or land development rights as well as general corporate expenditures.

The draft red herring prospectus (DRHP) shows that Macrotech Developers’ aggregate debt stood at ₹18,662.19 crore as of 31 December 2020. “Macrotech Developers’ plan to reduce net debt to ₹12,700 crore in the coming quarters negates concerns over high levering. Further, strong project portfolio and monetisation of huge land banks offer comfort,” said Reliance Securities in its report.

The company currently has 91 completed projects under its belt with another 36 in the works. This includes plans to develop a logistics and industrial park of over 800 acres in Mumbai, near Palava.

“If the company does not have access to funds required on favourable terms, it may be required to delay or abandon some or all planned projects or reduce the scale of operations,” noted Capital Markets.

And the larger issue of how the COVID-19 pandemic is going to play out brings in a lot of uncertainty.

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