Suraj Estate Developers
- Suraj Estate Developers is coming out with a 100% book building; initial public offering (IPO) of 1,17,64,705 shares of Rs 5 each in a price band Rs 340-360 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 more 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 December 18, 2023 and will close on December 20, 2023.
- The shares will be listed on BSE as well as NSE.
- The face value of the share is Rs 5 and is priced 68.00 times of its face value on the lower side and 72.00 times on the higher side.
- Book running lead managers to the issue are ITI Capital and Anand Rathi Advisors.
- Compliance Officer for the issue is Shivil Kapoor.
Profile of the company
The company has been involved in the real estate business since 1986 and develop real estate across the residential and commercial sectors in South Central Mumbai region. It has a residential portfolio located in the markets of Mahim, Dadar, Prabhadevi and Parel, which are sub-markets of the South-Central Mumbai micro market where it has established its presence. It is focused primarily on value luxury, luxury segments and commercial segment. It is now venturing into residential real estate development in Bandra sub-market. Its focus area of operation is the South-Central region in Mumbai mainly consisting of Mahim, Matunga, Dadar, Prabhadevi and Parel, as its expertise lies is in the redevelopment of tenanted properties under Regulation 33(7) of the Development Control and Promotion Regulations (DCPR) in the Mumbai region.
Since most of the land parcels in the South Central Mumbai market are in the nature of redevelopment projects, its core competence lies in tenant settlement which is a key element for unlocking value on such land parcels. It identify cessed/ noncessed properties with existing tenants, and tie up with the landlords of such tenanted properties by entering into a development agreement or on outright purchase basis through conveyance deed. The company does not provide any construction services on its own and is 100% dependent on third party contractors for the construction services of its Projects. Since incorporation, it has completed 42 projects with a developed area of more than 1,046,543.20 square feet in the South-Central Mumbai region. In addition to the Completed Projects, it has 13 Ongoing Projects with a developable area of 20,34,434.40 square feet and saleable carpet area 6,09,928 square feet and 16 Upcoming Projects with an estimated carpet area of 7,44,149 square feet.
The company has a longstanding presence of over 36 years in the real estate market in Mumbai. Its customer centric business model focuses on addressing customer requirements in various locations, ticket sizes and configurations. Its ability to deliver differentiated product offerings through its deep understanding of the real estate market coupled with design and execution capabilities, strong brand presence and extensive marketing initiatives has helped it to successfully grow its business. It has established a strong brand and a successful track record in the real estate industry through its emphasis on contemporary architecture, strong project execution capabilities and quality construction. Its strong presence in the South Central Mumbai region has generated significant brand recall in sub markets in this region and substantial sales referrals from existing customers. Its brand name, longstanding operations and extensive experience in South Central Mumbai region provides it with significant opportunities in this fast-growing redevelopment sub-markets in the region.
Proceed is being used for:
- Repayment/Prepayment of the aggregate outstanding borrowings of the company and its Subsidiaries, Accord Estates, Iconic Property Developers and Skyline Realty.
- Acquisition of land or land development rights.
- General corporate purposes.
Industry Overview
In last six to seven years, the real estate sector in India has witnessed several changes because of demonetization, the liquidity crisis and the implementation of RERA and GST. Despite the spiraling COVID-19 pressure across the country, the Indian residential sector made a significant comeback in 2021 with absorption rebounding to 171% of the corresponding period in 2020. In 2019, the absorption was recorded at 2.61 lakhs units which depicts that 2021 absorption has attained ~90% of the absorption recorded in 2019. This clearly demonstrated a 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. Further, the absorption numbers in 2022 have improved to 3.65 Lakh units. In Q1 2023 the absorption already is about 1.13 Lakh units and at same rate it stands to beat 2022 Absorption Levels. New launches have jumped by 185% - from 127,959 units in 2020 to 236,693 units in 2021. The same is almost in line with the launches recorded in 2019. There has also been an improvement in the 2022 numbers where the total launches are 3.58 Lakhs units. In H1 2023 there are 2.12 Lakhs launched units. The unsold inventory across the top 7 cities in India has remained stable on a yearly basis i.e., for 2021(638,192 units) as compared to unsold inventory in 2020 (638,015 units). This has witnessed a slight reduction in 2022 with 630,954 units on account of higher absorption levels as compared to the launches.
MMR has been the top performer in overall residential real estate activity in 2021 with a share of 24% of total supply (56,883 units) and 32% of total absorption (76,396 units) in the Top Seven Indian Markets. Further in 2022, there has been an improvement in the overall supply of MMR with a share of 35% of the total supply (124,652 units) and slight reduction in overall absorption levels of MMR with a share of 30% of the total absorption (109,733 units) in the Top Seven Indian Markets. As a result, MMR has evolved as the top performer in overall residential real estate activity in 2021 and 2022. From 2016 to H1 2023, the average base selling price in MMR has been approximately Rs 10,980 per square feet, which is the highest across Top Seven Indian Markets. MMR has witnessed a significant rice in the capital prices in last 2 years. Hyderabad reflected the lowest average base selling price of Rs 4,299per square feet among the Top Seven Indian Markets in the same period. The capital pricing trend in the H1 of 2023 is on similar lines as in 2022.
Pros and strengths
Established brand with long standing presence in Value Luxury Segment: The company’s deep knowledge of the market, regulatory environment and long standing presence in Value Luxury and Luxury Segment has helped it in identifying opportunities in this market. Most of its Completed, Ongoing and Upcoming Projects are under Value Luxury and Luxury Segments and are majorly located in and around South Central Mumbai region. The South Central Mumbai region is an attractive real estate market in terms of high realisation, aspirational value/premium product positioning and high demand across multiple segments and price points. Mumbai’s position as the commercial capital of India, together with the demographics of the Mumbai’s population, with a high-income, discerning customer base and an expanding segment of young, upwardly mobile professionals having a preference for the convenience of living in the island city of Mumbai, provides a substantial market for its projects. The Value Luxury Segment refers to its projects with ticket sizes ranging between Rs 10.00 million and upto Rs 30.00 million in the South Central Mumbai region and Luxury Segment refers to its projects with ticket sizes ranging above Rs 30.00 million and upto Rs 130.00 million.
Diversified portfolio encompassing product offerings across various price points in value luxury and luxury segments: The company has a diversified portfolio of residential developments, spread across price points, unit sizes and micro markets in the South Central Mumbai, catering to a wide spectrum of economic and demographic segments, from value luxury to luxury residences. Its ability to cater to the needs of customer across income brackets through a range of differentiated products offerings, supported by its technical and execution capabilities has enabled it to successfully grow its business. It has developed a diversified portfolio of projects that includes redevelopment projects as well as open plot projects, in the Value Luxury Segment and Luxury Segment from 1 BHK flats to 4 BHK flats. Its residential projects include units with prices ranging from Rs 10.00 million to Rs 130.00 million in the South Central Mumbai region for Value Luxury and Luxury Segments. Further, its projects are strategically located within South Central Mumbai region. Its residential projects benefit from sea view and variety of amenities such as clubhouse and landscaped garden, amongst others which appeal to its clients in Value Luxury and Luxury Segments.
Strong expertise in tenant settlement in the redevelopment projects: From 1986 to 2023, the company has completed 42 residential and commercial projects out of which 41 projects (97.62%) are redevelopment projects. Since most of the land parcels in the South Central Mumbai market are in the nature of redevelopment projects, tenant settlement is a key element for unlocking value on land parcels. Due to its track record of providing good quality free-housing to the tenants/ occupants it is the preferred developer even amongst the tenants in the South Central Mumbai region. It has a dedicated in-house team focusing on various requirements and concerns of tenants. As on October 31, 2023, the company has redeveloped houses for 1,011 tenants free-of-cost under regulation 33(7) of the Development Control and Promotion Regulation, 2034 (DCP Regulations) thereby simultaneously freeing considerable areas of FSI for commercial development.
Marketing and sales strategies: The company’s experienced marketing and sales team track market trends which enables it to position its projects appropriately in terms of location and price points, and creates a cohesive marketing strategy designed to secure and build brand value and awareness. Some of these strategies include exclusive code names for each project, large public launches with a book-building approach, and the implementation of the concept of self-sustained communities. The primary focus of its marketing team is to collectively work towards identifying the target market groups and leveraging promotional tools to attract the target group. Over the time, such initiatives have enabled it in creating differentiated products and market its projects to its target customers for each project. It uses differentiated sales strategies and multiple approaches to sell its products. It has dedicated in-house sales teams focusing on interaction with channel partners to drive walk-in at its sites (sourcing function) and the other focusing on deal closures (closing function).
Risks and concerns
Business is subject to seasonality: The company experiences seasonality in its business. Its operations may be adversely affected by difficult working conditions during monsoons that restrict its ability to carry on construction activities to some extent and fully utilize its resources. Its sales may also increase during the last quarter of every Fiscal. Accordingly, its results of operations in one quarter may not accurately reflect the trends for the entire financial year and may not be comparable with its results of operations for other quarters. It may also experience difficulties in expanding its business into additional geographical markets including MMR region. While the sub markets within South Central Mumbai region are expected to remain its primary strategic focus, it also evaluates attractive growth opportunities in various other micro markets on a case by case basis. It may not be able to leverage its experience in existing micro markets to expand its operations in other MMR or into other cities, should it decide to further expand its operations. Factors such as competition, culture, regulatory regimes, business practices and customs, customer tastes, behaviour and preferences in these regions where it may plan to expand its operations may differ from those in the micro markets where it is currently present, and its experience in such micro markets may not be applicable to other regions.
Operate in a labour-intensive industry: The company operates in a labour-intensive industry and hire contract labour is hired by its civil construction contractors for its projects. If the relationships of the independent contractors and their personnel deteriorate, it may experience labour unrest, strikes or other labour action and work stoppages. It depends on third party contractors for the provision of various services associated with its business. Such third-party contractors and their employees/ workmen may also be subject to similar labour legislations. Although it does not engage these labourers directly, it may be held responsible for any wage payments to be made to such labourers in the event of default by such third-party contractors to pay the labourers’ wage payments. Any requirement to fund their wage requirements may have an adverse impact on its results of operations and financial condition. In addition, under the Contract Labour (Regulation and Abolition) Act, 1970, notified and enforced by the Central Government and adopted with such modifications as may be deemed necessary by respective State Governments, it may be required to absorb a number of such contract labourers as permanent employees.
Redevelopment projects are subject to certain risks: As of October 31, 2023, out of the company’s 13 Ongoing Projects, and 16 Upcoming Projects, 12 of its Ongoing Projects and 13 of its Upcoming Projects are redevelopment projects. Under the redevelopment agreements entered into by it with various housing societies or public charitable trusts, it has paid certain amounts as refundable deposits or non-refundable advance compensation. It has also agreed to compensate the members of the housing societies for the inconvenience they suffer during the course of development and construction. As it has committed to a time frame within which it is required to hand over the completed units to the housing societies, it may be liable to pay a penalty from the date of expiry of the stated period until the date it offers possession of the units, apart from the additional rent payable for the alternate premises during such period of delay. Its ability to pursue such redevelopment projects is contingent on the occupants providing it with peaceful vacant possession of the property. Further, these projects require, among other things, obtaining consent from a majority of the occupants and consensus between various groups of occupants as well as their approval for project plans.
Rely on various contractors or third parties: All of the company’s projects require the services of contractors and various other parties including architects, engineers, consultants and suppliers of labour and materials for its projects. The timing and quality of construction of the projects that it develops depends on the availability and skill of these parties, as well as contingencies affecting them, including labour and construction material shortages and industrial action such as strikes and lockouts. It may not be able to identify appropriately experienced third parties and cannot assure that skilled third parties will continue to be available at reasonable rates and in the areas in which it undertakes its projects, or at all. As a result, it may be required to make additional investments or provide additional services to ensure the adequate performance and delivery of contracted services and any delay in project execution could adversely affect its profitability. Additionally, it relies on suppliers and do not have direct control over the quality of the products they supply, which may adversely affect the construction quality of its developments.
Outlook
Suraj Estate Developers builds and develops real estate, with a focus on best-in-class collaborations and client assurance. It is a marquee real estate construction company with over 35 years of experience in building inspiring spaces. Its ongoing projects – The Palette, Ocean Star, Suraj Emmanuel, Louisandra and Ave Maria – redefine city living while transforming the Mumbai landscape. It has developed over 10 lakh square feet land in Mumbai’s finest neighborhoods. It has developed custom spaces for the country’s leading institutions including the National Stock Exchange of India, Union Bank of India and Clearing Corporation of India. Its best-in-class associations bring the world’s finest to its most discerning residents. The company’s longstanding presence in South Central Mumbai has resulted in better understanding of emerging trends, customer preferences and significant brand recall. Its in-house expertise of redevelopment and the successful delivery of 42 Completed Project has helped it in building customer trust over the last 36 years. On the concern side, the company conduct various site studies to identify potential risks prior to the acquisition of any parcel of land or development rights for a parcel of land and its construction and development. However, there are certain unanticipated or unforeseen risks that may arise due to adverse weather and geological conditions such as outbreaks of storms, hurricanes, lightning, floods, landslides, rockslides and earthquakes and other reasons.
The company is coming out with an IPO of 1,17,64,705 equity shares of face value of Rs 5 each. The issue has been offered in a price band of Rs 340-360 per equity share. The aggregate size of the offer is around Rs 400.00 crore to Rs 423.53 crore based on lower and upper price band respectively. On performance front, the company’s total income for Fiscal 2023 was Rs 3,078.90 million as compared to Rs 2,739.07 million for Fiscal 2022, representing an increase of 12.41%. The company’s restated profit for the Fiscal 2023 was Rs 320.64 million as compared to Rs 265.04 million for the Fiscal 2022. Its profit margin increased to 10.49% in Fiscal 2023 from 9.72% in Fiscal 2022. Meanwhile, the company continues to focus primarily on residential projects in the Value Luxury and Luxury Segments within select micro-markets of the South Central Mumbai region by leveraging its brand, deep experience and a track record of successful execution. It further intends to leverage its in-depth knowledge of these sub markets and continue to focus its expansion plans in the South Central Mumbai across different price points and customer segments.
