Signatureglobal India
- Signatureglobal (India) is coming out with a 100% book building; initial public offering (IPO) of 1,99,45,354 shares of Rs 1 each in a price band Rs 366-385 per equity share.
- Not less than 75% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not more than 15% of the issue will be available for the non-institutional bidders and the remaining 10% for the retail investors.
- The issue will open for subscription on September 20, 2023 and will close on September 22, 2023.
- The shares will be listed on BSE as well as NSE.
- The face value of the share is Rs 1 and is priced 366.00 times of its face value on the lower side and 385.00 times on the higher side.
- Book running lead managers to the issue are ICICI Securities, Axis Capital and Kotak Mahindra Capital Company.
- Compliance Officer for the issue is Meghraj Bothra.
Profile of the company
The company is the largest real estate development company in the National Capital Region of Delhi (Delhi NCR) in the affordable and lower mid segment housing in terms of units supplied (in the below Rs 8 million price category) between 2020 and the three months ended March 31, 2023, with a market share of 19%. It commenced operations in 2014 through its Subsidiary, Signature Builders, with the launch of its Solera project on 6.13 acres of land in Gurugram, Haryana. It has grown its operations over the years and in less than a decade, and as of March 31, 2023, it had sold 27,965 residential and commercial units, all within the Delhi NCR region, with an aggregate Saleable Area of 18.90 million square feet. Its Sales (net of cancellation) have grown at a compounded annual growth rate (CAGR) of 42.46%, from Rs 16,902.74 million in Fiscal 2021 to Rs 34,305.84 million in Fiscal 2023. As of March 31, 2023, it has sold 25,089 residential units with an average selling price of Rs 3.60 million per unit.
The company has strategically focused on the Affordable Housing (AH) segment (below Rs 4 million price category) and the Middle Income Housing (MH) segment (between Rs 4 million to Rs 2.5 million private category) through GoI and state government policies. The state government of Haryana under its various policies allows development of AH and MH. For example, it has been extensively involved in developing projects specifically the Affordable Housing Policy, 2013 notified by the Town and Country Planning Department, Government of Haryana (AHP) and the Affordable Plotted Housing Policy or the Deen Dayal Jan Awas Yojana (DDJAY - APHP). Each of the policies is focused on affordable and mid segment housing. The AHP aims to encourage planning and completion of group housing projects under which apartments of a pre-defined size are to be made available at pre-defined rates and completed within a targeted time-frame to ensure increased supply of affordable housing, while the DDJAY - APHP is intended to encourage the development of high density plotted colonies in the state of Haryana.
In addition, going forward the company will also develop some of its Forthcoming Projects under the Haryana Group Housing Policy (HGHP) and New Integrated Licensing Policy (NILP) combining them with the provisions of Transit Oriented Development Policy (TODP) and Transfer of Development Rights Policy (TDRP), which it will enable it to achieve higher FAR, hence higher developable area as well as higher density to target the MH segment. The TODP aims to encourage development around metro corridors for which extra FAR and higher density has been allowed. The TDRP provides industry participants with FAR in lieu of land which goes into public use, and such FAR can be loaded by developers on to their projects along with an increased density.
Proceed is being used for:
- Re-payment or pre-payment, in full or in part, of certain borrowings availed by the company.
- Infusion of funds in certain of Subsidiaries, namely Signatureglobal Homes, Signatureglobal Developers, Signatureglobal Business Park. and Sternal Buildcon for re-payment or pre-payment, in full or in part, of certain borrowings availed by Subsidiaries.
- Inorganic growth through land acquisitions and general corporate purposes.
Industry overview
Real estate sector is an important contributor to country’s economy, and its role in terms of growing market size and share in India’s GDP is well appreciated by the Government of India. Housing sector in India is by and large catered by private sector. Housing or residential asset class form a part of real estate sector in India, that has witnessed several changes in the last four years. There are some structural changes such as implementation of Real Estate Regulator Act (RERA), implementation of Goods and Service Tax (GST) for under construction housing, and effects owing to demonetization, the temporary liquidity crisis of 2018-19 (NBFCs related) and 2020 (Covid-19 pandemic related). Main factors governing housing scenario are ability of buyers to purchase houses and ability of developers to create housing stock for buyers to buy. Government’s policies and initiatives as facilitating measures also are a factor among others, being affordability, home loan interest rates and penetration of home loans as a facility for the home buyers etc. The government’s policy support and supportive intervention and increase in household income have improved the overall affordability levels in last two and a half decades The increase in household income with almost steady levels of the ticket prices have resulted in increasing the affordability of housing units.
The affordability ratio has improved from 22 in 1995 to 3.2 in 2022. A lower affordability ratio implies that there is higher affordability. The Indian real estate sector has witnessed consolidation in the past few years. With the implementation of RERA, the financially weak developers were not able to adhere to compliance norms and were, therefore, either going out of business or consolidating with larger players. The liquidity crisis of 2018 - 2019 (NBFCs related) further worsened the situation for such developers, which resulted in such developers leaving the sector. The market has also undergone through a consolidation phase in last few years, particularly so after 2016 when reforms such as implementing RERA, demonetization etc. took place. The market witnessed a drop in number of developers remaining active, thus making the market a place with more reliable and capable players than earlier. Through the Government of India initiative ‘Housing for All by 2022’, the Government has granted infrastructure status to the affordable housing segment. Owing to its status, affordable housing projects are categorized as low risk projects, hence banks can now offer loans to developers at lower rates of interest as compared to a conventional real estate project. Infrastructure status to affordable housing has further led to easier access to institutional capital, thereby reducing the developer’s cost of capital for projects.
Pros and strengths
Largest affordable and lower-mid and mid segment real estate developer in Delhi NCR: The company is the largest real estate development company in Delhi NCR in the affordable and lower mid segment housing, in terms of units supplied (in the below Rs 8.00 million price category) between 2020 and the three months ended March 31, 2023, with a market share of 31%. It has considerable experience in project execution in the affordable and lower mid segment housing and are also among the leading residential real estate developer in Delhi NCR with a 16% market share in terms of units supplied between 2019 and the six months ended June 30, 2022 (across all budget categories). As of March 31, 2023, it has sold 25,089 residential units, with an average selling price of Rs 3.60 million per unit. Its offerings have been focussed on the affordable and lower mid segments in Delhi NCR which have significant demand. In the past five years, absorption has outnumbered supply in the affordable and mid segment category and inventory has been witnessing a continuous decline, indicating sustainable demand in these categories. It has been agile in strategically adapting its projects to the requirements of, and thereby benefitting from incentives under, the AHP and DDJAY - APHP schemes. Under the AHP, the minimum land required for development is smaller compared to the land requirement under the Haryana Group Housing Policy (HGHP). This ensures greater availability of contiguous land parcels eligible for development under the AHP policy vis a vis the HGHP.
Well-established brand, strong distribution network and digital marketing capabilities translating into faster sales: The company has within a relatively short period of time developed a strong brand and customer goodwill based on its track record of delivering “value homes”. It has also provided strategically-located, distinctive-design projects with an array of amenities, all at affordable prices. The strength of a real estate developer’s brand is a key attribute that influences customer decision. It has succeeded in developing a distinct brand leveraging its comprehensive understanding of customer needs and unwavering focus on delivering quality projects and customer-centric services. The strength of its brand is also reflected in various awards and recognitions received by it and its projects, including Best Affordable / Budget Housing Developer of the Year at the 13th Annual Estate Awards 2021, Developer of the Year, Residential, at the 13th Realty+ Conclave and Excellence Awards (North), 2021 and Best LIG Housing Project for its project Solera at the PMAY Empowering India 2019, presented by the Minister of State, Ministry of Housing and Urban Affairs, GoI.
Fast growing with ability to scale up rapidly: The company has demonstrated its ability to scale up rapidly by growing its project portfolio from 9.06 million square feet of Saleable Area as on March 31, 2018, to 44.65 million square feet of Saleable Area as on March 31, 2023, which includes the Saleable Area of its Completed Projects and Ongoing Projects and the estimated Saleable area of its Forthcoming Projects. It launched its first project in 2014 and as of March 31, 2023, it had sold 27,965 units with an aggregate Saleable Area of 18.90 million square feet. As of March 31, 2023, it had Ongoing Projects comprising approximately 17.21 million square feet of Saleable Area. It has replicated its business model across micro-markets in Delhi NCR and particularly in Gurugram, Haryana and has continuously expanded its business to capitalize on its strong brand name. It has been able to scale up at a rapid pace owing to its standardized design, technical specifications and layout plans, which it also anticipates will allow it to expand its operations speedily in future. Its track record in execution and continued construction has been instrumental in its consistent Sales and performance, despite challenging market conditions due to the COVID-19 pandemic.
Ability to provide aspirational lifestyle and amenities at affordable pricing and at strategic locations: The company seeks to provide customers with “value homes” with better living standards supported by comprehensive community facilities. It seeks to develop projects at attractive locations with good connectivity across the Delhi NCR, proximate to commercial and retail projects and recreational spaces. Its projects under the DDJAY - APHP include a host of amenities and features such as dedicated car parking, jogging tracks, swimming pools, skating arenas, badminton courts, yoga and meditation lawns, sporting and recreational facilities. Its projects under the AHP scheme include amenities such as large open green spaces, outdoor gymnasiums and dedicated kids’ playing areas. In addition, the supporting infrastructure that it provides, such as commercial and retail offerings within its residential projects, benefit its customers and enhance the value of its residential projects. In order to create the aspirational lifestyle environment in its projects, in addition to experienced in-house architects and design teams, it closely work with various reputed architects such as Gian P Mathur & Associates Private Limited and Deepak Mehta & Associates to design its projects. Its offerings are typically purchased by salaried individuals who avail financing for their purchase. As of March 31, 2023, 44.09% of 23,845 residential units sold by it in Gurugram and Sohna involved housing finance availed by its customers. The success of its projects among the salaried class provides access to a large potential customer base in the Delhi NCR market.
Risks and concerns
Depend significantly on residential development business: The company has in the past been and continue to be engaged in the development of residential real estate projects for customers in the affordable and mid housing segment, predominantly in Gurugram and Sohna micro-markets in the Delhi NCR region. As part of its growth strategy, it intends to continue to focus on the affordable and mid segment housing Inability to anticipate and respond to customer preferences and requirements may affect its business and prospects. Further, any changes in the market for residential real estate, including a change in the home loans market or governmental regulations making home loans less attractive to its customers, may materially and adversely affect its business, growth prospects and financial performance.
Requires significant expenditure for development: Development of real estate projects involves significant expenses, a large part of which it funds through real estate financing from banks and other financial institutions. As of March 31, 2023, its total borrowings, including interest accrued (without impact of EIR adjustments) stood at Rs 17,510.80 million. It had availed an aggregate borrowing of Rs 200.00 million towards three of its Completed Projects as of March 31, 2023. The total amount outstanding towards the aforementioned loan was Rs 115.00 million as of March 31, 2023. Since, the term of the borrowing is for 60 months with repayment starting from March 2, 2022, such amount was outstanding including for one of its Completed Projects as of March 31, 2023. Its business requires a significant amount of working capital for activities including the performance of engineering, construction and other works on projects before it receive payment from its clients. It 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.
Rely on information technology systems: The company relies on its information technology systems for its operations and its reliability and functionality is critical to its business success. It sells its projects online and rely on IT for internal controls. Its growing dependence on the IT infrastructure, applications, and data has caused to have a vested interest in its reliability and functionality, which can be affected by a number of factors, including, the increasing complexity of the IT systems, frequent change and short life span due to technological advancements and data security. If its IT systems malfunction or experience extended periods of down time, it may not be able to run its operations safely or efficiently. It may also lose out on potential customers if its website witnesses downtime. It may suffer losses in revenue, reputation and volume of business and its financial condition and results of operation may be materially and adversely affected. So far, it has not experienced any material widespread disruptions of service to its clients, but there can be no assurance that it may not encounter disruptions in the future.
Rely on independent construction contractors: As part of the company’s operations, it contracts with independent construction contractors for the construction of all (100.00%) of its projects. If a contractor fails to perform its obligations satisfactorily or within the prescribed time periods with regard to a project or terminates its arrangements with it, it may be unable to develop the project within the intended timeframe, at the intended cost, or at all. If this occurs, it may be required to incur additional cost or time to develop the property to appropriate quality standards in a manner consistent with its development objective, which could result in reduced profits or in some cases, significant penalties and losses. It cannot assure that the services rendered by such independent construction contractors will always be satisfactory or match its requirements for quality. In addition, it may be subject to claims in relation to defaults and late payments to its contractors, which may adversely affect its business, results of operations, and cash flows.
Outlook
Signatureglobal (India) is a real estate development company. The company operates in the National Capital Region of Delhi (Delhi NCR) focussed on offering affordable and mid-segment housing in terms of units supplied. Signatureglobal (India) started its operations with its Solera project on 6.13 acres of land in Gurugram, Haryana and today has grown tremendously. It focuses on GoI and state government policies supporting affordable housing in order to assist customers in realizing their dream of having their own home. Policies like Affordable Housing Policy, 2013, the Affordable Plotted Housing Policy or the Deen Dayal Jan Awas Yojana (DDJAY - APHP), and so on. The company aspires to offer 'value homes' which are a combination of attractive designs and amenities. Another aspect that the company proactively seeks is to enhance the value of its projects and create a better living environment. It has an extensive distribution network focussed on the customer segments it target, with 593 channel partners and an inhouse team of 41 employees engaged in direct sales and 100 employees for indirect sales, as of March 31, 2023, that has helped it to achieve the current scale of its offerings. It has also been effectively leveraging technology for the sale of its inventory. On the concern side, the agreements that it enters into with certain of its customers require it to complete construction on time and may provide for penalty clauses wherein it is liable to pay penalty to the customers for any delay in the completion of project. It cannot assure that it will always finish the construction or development of its projects in accordance with the timelines specified in such agreements.
The issue has been offered in a price band of Rs 366-385 per equity share. The aggregate size of the offer is Rs 730.00 crore to Rs 767.89 crore based on lower and upper price band respectively. On the financial front, total income increased by 68.78% from Rs 9,396.00 million in Fiscal 2022 to Rs 15,858.78 million in Fiscal 2023 primarily due to an increase in revenue from operations. The company’s loss after tax was Rs 637.15 million in Fiscal 2023 compared to a loss after tax of Rs 1,155.00 million in Fiscal 2022. Meanwhile, the company intends to utilise affordable housing policies in Delhi NCR and focus on projects having residential units with ticket sizes ranging from Rs 4 million to Rs 25 million, based on changing customer preference. In addition, it will also develop some of its Forthcoming Projects under the HGHP and NILP, combining them with the provisions of TODP and TDRP, which will enable it to achieve higher FAR, hence higher developable area as well as higher density. The TODP aims to encourage development around metro corridors for which extra FAR and higher density has been allowed.
