Keystone Realtors
Keystone Realtors is coming out with a 100% book building; initial public offering (IPO) of 1,23,54,082 shares of Rs 10 each in a price band Rs 514-541 per equity share.
Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
The issue will open for subscription on November 14, 2022 and will close on November 16, 2022.
The shares will be listed on BSE as well as NSE.
The face value of the share is Rs 10 and is priced 51.40 times of its face value on the lower side and 54.10 times on the higher side.
Book running lead managers to the issue are Axis Capital and Credit Suisse Securities (India).
Compliance Officer for the issue is Bimal K Nanda.
Profile of the company
The company is one of the prominent real estate developers in the micro markets that it is present in. It command a market share of 28% in Khar, 23% market in Juhu, 11% in Bandra East, 14% in Virar, 3% in Thane and 5% in Bhandup in terms of absorption (in units) from 2017 to 2021. As of June 30, 2022, it had 32 Completed Projects, 12 Ongoing Projects and 21 Forthcoming Projects across the Mumbai Metropolitan Region (MMR) that includes a comprehensive range of projects under the affordable, mid and mass, aspirational, premium and super premium categories, all under its Rustomjee brand. As of June 30, 2022, it has developed 20.22 million square feet of high-value and affordable residential buildings, premium gated estates, townships, corporate parks, retail spaces, schools, iconic landmarks and various other real estate projects. Since the company’s inception in 1995, it has strived to create a brand focused on customer satisfaction, building communities and nurturing spaces that provide its customers a superior lifestyle. It aspire to have its customers perceive the ‘Rustomjee’ brand as a trusted provider of quality offerings and services due to its track record of delivering multiple high-end award winning buildings, gated communities and townships. Its experience in the MMR market have helped it develop a firm understanding and acquire the requisite skill sets to create ideal spaces for communities to flourish.
The company has a diversified suite of projects across a wide range of price points, and a presence in several micro markets. It has experience in developing lifestyle projects, high value standalone buildings, gated communities and fully integrated townships, re-developments and stalled projects. It strategically introduces differentiated offerings and corresponding amenities based on the needs of the location and community to maximise its revenue. Over the years, it has implemented designs based on customer insights and eco-friendly construction technologies to deliver modern lifestyle solutions and a diverse range of projects. Some of its notable projects include Rustomjee Elements, a large gated community in Upper Juhu, Mumbai; Rustomjee Paramount, a signature complex in Khar, Mumbai; Rustomjee Seasons, a 3.82 acres gated community in Bandra Annexe, Mumbai; Rustomjee Crown, a 5.75 acres land parcel for high-end development at Prabhadevi, South Mumbai, consisting of three high-rise towers. Its projects include features for entertainment for the family, such as an approximately 150,000 square feet clubhouse at its Virar Global City project, a 6.22 acres podium at its Thane project, a 11.72 acres amusement park at its Virar Global City project, Leon’s World which is an interactive play space for children and adults at its Rustomjee Urbania project. It considers gated communities as the future of living, and strives to create “nurturing spaces” to deliver convenience, community and comfort to its customers. It place emphasis on understanding the demographic it cater to, their needs, traditions and lifestyles.
Proceed is being used for:
Repayment/ prepayment, in full or part, of certain borrowings availed by the Company and/or certain of its Subsidiaries.
Funding acquisition of future real estate projects and general corporate purposes.
Industry overview
Indian real estate was just beginning to come to terms with the multiple reforms and changes brought in by demonetization, RERA, GST, IBC, and subvention scheme ban. While the sector found it difficult to align with the slew of reforms and changes, these measures helped fortify the sector and instil transparency, accountability, and fiscal discipline over the last few years. Structural changes of RERA and GST have helped the sector to gain more maturity and trust from the market. While the sector was on a growth trajectory since the last few years and was likely to emerge stronger than before, the COVID-19 lockdown during first wave (March 2020 to May 2020) put brakes on its growth momentum in first half of 2020. However, it rebounded sharply in the second half of 2020 across top cities heralding to continued housing market revival in 2021.
The real estate sector in India has witnessed several changes in market conditions because of demonetization, NBFC liquidity crisis of 2018 and the implementation of RERA and GST in this period, the overall effect being that the sector has moved towards more transparency and being more organized than in years earlier of these reforms taking place. Despite the spiralling COVID-19 pressure across the country, the Indian residential sector made a significant comeback in 2021 with absorption rebounding to 171% as compared to 2020. In 2019, the absorption was recorded at 2.61 lakhs units which depicts that 2021 absorption has attained approximately 90% of the absorption recorded in 2019. This clearly demonstrates steady recovery as compared to 2020. The Mumbai Metropolitan Region (MMR), Pune, Bengaluru, Hyderabad, the National Capital Region (NCR), Chennai and Kolkata (Top Seven Indian Markets) recorded absorption of approximately 2.37 lakh units in 2021 as compared to 1.38 lakh units in 2020.
Pros and strengths
Well established customer-centric brand in the Mumbai Metropolitan Region: The company is one of the prominent real estate developers (in terms of absorption in number of units) in the micro markets that it is present in, namely Juhu, Bandra East, Khar, Bhandup, Virar and Thane and is able to garner premium pricing in the MMR micro-markets where its projects are located. As of June 30, 2022, it had 32 Completed Projects, 12 Ongoing Projects and 21 Forthcoming Projects across the MMR that includes a comprehensive range of projects under the affordable, mid and mass, aspirational, premium, and super premium categories, all under its Rustomjee brand. Its presence in the MMR market for two and half decades, together with its construction quality, execution and delivery capabilities, has enabled it to establish the Rustomjee brand in the MMR. Its brand image also encourages stakeholders in the real estate development industry to prefer partnering with it, in particular for re-development and stalled projects. Over the last decade, its reputation as a re-development expert based on its vast experience of undertaking re-development projects has led it to secure additional projects.
Amongst the leading residential real estate development companies in MMR: The company is one of the prominent real estate developers (in terms of absorption in number of units) in the micro markets that it is present in, namely Juhu, Bandra East, Khar, Bhandup, Virar and Thane. It has a diversified suite of projects across a wide range of price points, and a presence in several micro markets. It has experience in developing lifestyle projects, high value standalone buildings, gated communities and fully integrated townships, re-developments and stalled projects. It is active in the sub-markets such as Juhu, Bandra East, Bandra West and Khar with reference to redevelopment projects. It is one of the prominent real estate developers in the redevelopment segment in terms of supply in the micro markets that it is present in, wherein it commands a market share of 39% in Khar, 14% in Bandra East and 14% in Juhu from the overall redevelopment supply between 2017 and 2021. Its diversified portfolio has allowed it to hedge its revenue pipelines and shield against business fluctuations across categories.
Asset-light and scalable model resulting in profitability and stable financial performance: As part of the company’s business model, it focus on entering into joint development agreements and re-development agreements with landowners or developers or societies, which requires lower upfront capital expenditure compared to direct acquisition of land parcels. It identifies land for development or re-development based on a detailed feasibility study for the relevant project, including factors such as location, price, purpose and design impediments. Since its inception, it has learned and honed the process of re-development and to balance the diverse needs of existing members in each project. With its experience, it has been able to institutionalize and streamline the process of re-development, which includes managing relationships with existing members and addressing their concerns, vacation of site, regulatory approvals, and harmonious integration of existing members and new sale customers. Similarly, its experience in partnerships has helped it hone and institutionalize the processes of collaborating with landowners under a joint development model.
Demonstrated project execution capabilities with in-house functional expertise: The company has adopted an integrated real estate development model, with capabilities and in-house resources to execute projects from its initiation to completion. It has developed in-house competencies for every stage of the property development life cycle, commencing from business development, which involves identification of land parcels and the conceptualization of the development, land acquisition, approvals, to execution, comprising planning, designing and overseeing the construction activities, marketing and sales culminating in property delivery. It relies on the domain knowledge, experience and functional expertise of its in-house experts to deliver quality projects in compliance with regulations. It leverage its strong brand and reputation, development track record, industry knowledge and know-how of the regulatory environment in the MMR, and expertise in designing amenities, to deliver projects that meet the demands of its customers. In particular, it strives to maintain the “desirability” of its real estate portfolio across all categories to command premium pricing power.
Risks and concerns
Shortage of land for development in the MMR: The company’s operations are focused on the MMR. The availability of land for development within the MMR is limited, expensive and subject to intense competition. In addition, the use and development of land is subject to regulations by various local authorities. For example, if a specific parcel of land has been deemed as agricultural land, no commercial or residential development is permitted without the prior approval of the local authorities. Such restrictions could lead to further shortage of developable land. It may not be able to pass on such high cost of land to its customers or develop projects that are attractively priced for customers, while ensuring its profitability. Further, it is subject to municipal planning and land use regulations in effect in the MMR, which limit the maximum square footage of completed buildings it may construct on plots to specified amounts, calculated based on a ratio of the combined gross floor area of all floors, except areas specifically exempted, to the total area of each plot of land (the floor space index, or “FSI”).
Requires significant expenditure for real estate project development: Development of real estate projects involves significant expenses, a large part of which it fund through financing from banks and other financial institutions. As of October 15, 2022, the company had total financial indebtedness of Rs 15,217.96 million out of which Rs 1,120.70 million is outstanding towards its Completed Projects since the loan is taken against the unsold inventory/receivables of Completed Projects and is getting repaid from the proceeds of sale of inventory/collections of Completed Projects. The company typically meets its working capital requirements from external debt availed from banks and financial institutions. Its ability to borrow and the terms of its borrowings will depend on its financial condition, the stability of its cash flows and its capacity to service debt in a rising interest rate environment. If it is unable to sell its inventory of units, or there are cancellation of Pre-sales or regulatory changes restricting the use of revenue generated from Presales, its working capital requirements are likely to increase significantly and may thereby adversely impact its operations. All these factors may result in increases in the amount of its receivables and short-term borrowings.
Challenge to sell project inventories in a timely manner: As of June 30, 2022, the company had unsold residential project inventory of an aggregate Saleable Area of 0.15 million square feet in its completed projects, an aggregate Saleable Area of 1.96 million square feet in its ongoing projects and an aggregate estimated saleable area of 22.41 million square feet in its forthcoming projects. Further, the company has unsold inventory in commercial projects with an aggregate saleable area of 0.17 million square feet in ongoing projects. If the company is unable to sell such inventory at acceptable prices and in a timely manner, its business, results of operations and financial condition could be adversely affected.
Face competition from various national and regional real estate developers: The company competes for land, sale of projects, manpower resources and skilled personnel with other private developers. It faces competition from regional, national and international property developers. Moreover, as it seeks to diversify into new geographies, it faces the risk that some of its competitors have a pan-India presence while its other competitors have a strong presence in certain regional markets. It competes with these developers for the sale of its projects as well as entering into joint development and joint venture opportunities. Its success in the future will depend significantly on its ability to maintain and increase market share in the face of such competition. Its inability to compete successfully with the existing players in the industry, may affect its business prospects and financial condition.
Outlook
Incorporated in 1995, Keystone Realtors is one of the prominent real estate developer. The company is engaged primarily in the business of real estate construction, development and other related activities in India. As of June 30, 2022, the company had 32 Completed Projects, 12 Ongoing Projects and 21 Forthcoming Projects across the Mumbai Metropolitan Region (MMR) that includes a comprehensive range of projects under the affordable, mid and mass, aspirational, premium and super premium categories, all under the Rustomjee brand. June 30, 2022, it has developed 20.22 million square feet of high-value and affordable residential buildings, premium gated estates, townships, corporate parks, retail spaces, schools, iconic landmarks and various other real estate projects. As part of the business model, the company is entering into joint development agreements, redevelopment agreements with landowners or developers or societies, and slum rehabilitation projects, which requires lower upfront capital investment compared to direct acquisition of land parcel. On the concern side, the company conducts various site studies to identify potential risks prior to construction and development. However, there are certain unanticipated or unforeseen risks that may arise due to adverse weather and geological conditions such as lightning, floods, and earthquakes and other reasons. Besides, development of real estate projects involves significant expenses, a large part of which it funds through financing from banks and other financial institutions.
The issue has been offered in a price band of Rs 514-541 per equity share. The aggregate size of the offer is around Rs 634.99 crore to Rs 668.36 crore based on lower and upper price band respectively. On the performance front, total income increased by 10.68% from Rs 11,772.66 million in Fiscal 2021 to Rs 13,029.69 million in Fiscal 2022 primarily on account of an increase in revenue from operations. The company’s restated profit after tax for the year was Rs 1,358.26 million in Fiscal 2022 compared to a restated profit after tax of Rs 2,318.23 million in Fiscal 2021. Meanwhile, the company plans to leverage its strength and experience in stakeholder management to take on more re-development projects in select parts of Mumbai based on its internal criteria. It will also continue to identify stalled projects and collaborate with the Slum Rehabilitation Authority and developers as a last mile partner to undertake multiple developments and reduce project risks associated with land development. It will continue to focus on developing mechanized and technological construction capabilities to increase the efficiency and quality of its projects. It intends to monitor its projects using software and online tools, which will enable it to reduce project timelines, ensure quality, reduce maintenance expenses and allocate resources in a timely manner.
