Samruddhi Realty IPO: Not Much To Offer

The BSE SME platform provides a good opportunity for small and medium enterprises (SMEs) to get listed on the bourses, and many SME companies are considering this option. Bangalore-based Samruddhi Realty (SRL) has filed a DRHP to raise an amount of Rs 260.40 lakh through an initial public offering (IPO). SRL has plans to issue 21.70 lakh equity shares through this issue at a fixed price of Rs 12 per share.

In this offering, 1.10 lakh equity shares are reserved for market makers and the remaining 20.60 lakh equity shares will be issued to the public. The lot size for this public offering will be 10,000 equity shares and in the multiples of 10,000. Currently, the company has 48.30 lakh equity shares and it will be left with 70 lakh equity shares after the issue. The lead manager for this issue is Hem Securities.

SRL is a real estate company, which is involved in this business since 2003. The company is in the initial years of its business, and has executed various high value luxury apartment projects. The company's core area of business is residential projects. In its 9 years of experience, it has executed many projects at different regions in Bangalore. The company now plans to make a presence in other cities like New Delhi, Pune, Chennai, Ahmedabad and Hyderabad. 

The company is a member of CREDAI and Green Building Council. Moreover, it has 4 ongoing and 5 upcoming projects in line. The planned projects are expected to be launched in another three to five years with a total saleable area of approximately 30 lakh square feet.

Moving to the company's financials, SRL has posted a strong performance in the last few years. SRL has posted revenues of Rs 987.43 lakh in H1FY13. Its net profit reached Rs 154.38 lakh in H1FY13. The company has a total debt of Rs 3667.90 lakh in H1FY13. Being a construction company, the current debt is a result of higher input cost and the company is now paying higher finance costs.

Further, the company intends to utilise the issue proceeds to reduce the overall indebtedness by partial repayment of the outstanding long-term loan taken from Karnataka Bank. As stated in the company's DRHP, it will utilise Rs 207 lakh for debt repayment and the remaining amount will be used to meet the issue expenses. The current outstanding balance of the company with Karnataka Bank as on January 31, 2013 is Rs 1108.50 lakh. Till January 31, 2013, the total secured loan from banks and NBFCs is Rs 1876.07 lakh and has an unsecured loan of Rs 372.38 lakh.

Moreover, SRL has quoted Rs 12 per share for this public issue. It is trading at 2.72x on an annualised EPS Rs 4.41. Also, the company has a huge debt at present. While the company is earning a profit of Rs 154 lakh in half an year, it is raising only Rs 260 lakh through an IPO for paying its existing debt which is almost Rs 1876.07 lakh. This is questionable.

Most of the company’s projects are based on a joint development model, in which it takes land from owners and provides them with a built-up area. This reduces the margins of the company. Along with this, the company has not provided all the details of its ongoing and upcoming projects in its DRHP. Hence, the confidence level in the company's fundamentals is at a low, and investors should therefore not subscribe to this offering.