Sustainning Revenue Growth to be Crucial for Suraj Developers Rajesh N Naidu ET Intelligence Group: Mumbaibased real estate company Suraj Estate Developers plans to raise 400 crore through a fresh issue of equities in the primary market. The company, which is into residential and commercial segments, plans touse 285 crore to repav dept of itsown and that of its subsidiaries. Im addition, the company plans to use 35 crore for acquisition of land or land development rights. Afterthe IPO, the promoter group's stake will drop to 75 from 100. Given a smaller size of operations, investors may wait and assess whether the company is able to Sustain the revenue growth and how well it catches up with its bigger peersinthe industry. Hence. investors will be better off considering investments in the companvy in the Secondary market. BUSINESS Thecompany isfocused on the South Central Mumbai market (SCM) which includes Mahim, Matunga. Dadar, Prabhadeviand Parel. Ithascompleted 42 projects covering more than 10 lakh square feet. In the residential segment. the company follows three basic models. One is an asset light model in L which it outsourThe company, ces construction whichis into work to a third residential& party contractor. commercial Another model segments, is where it buys plans to use vacantlandorre2285croreto develops exisrepay debt ting buildings. In the third business Segment, it IS a niche player in theredevelopment of tenanted properties under Regulation 33 (7) of the Development Control and Promotion Regulations (DCPR) in the Mumbai region. This works in company's favour asalargechunk of land in SCM is largely redevelopment projects. In the commercial segment, the company has completed construction of ICICI Apartments, NEAT House, Saraswat Suraj Estate IPO Dates: Dec. 18-20, 2023 Price: 340-360 Size: 400 crore Implied market cap: Up to 1,597 crore Face value: 5 Lot size: 41 shares Retail portion: 359% HEMANT L Bank Bhavan, and CCIL Bhavan. At present, the company is developing thirteen projects amounting to more than 20 lakh squarefeet.Inaddition, the company has upcoming sixteen projectsamounting tomore than seven lakh square feet of carpet areainthecomingyears. FINANCIALS In the three years to FY23, the company's total income rose to 307.8 crore from 243.9 crore while net profit shot up to 32 crore from 6.2 crore. The operating margin before depreciation and amortisation (EBITDA margin) wasintherange of 36-50o during the period. The return on capital employed (RoCE) improved to 21.9% in FY23from14.5% in FY21. VALUATION Considering fully diluted equity after the IPO, the issue commands price-earnings (P/E) multiple of upto 27.5. According to Bloomberg data. considering the estimated earnings of FY24 and FY25, the average P/E multiple of realty companies in the Nifty Realty Index is in the range of 40-50. rajesh.naidu'a timesgroup.com