IPO Size: Rs. 410 cr, Entirely Fresh Issue   

• Rs. 250 cr for construction cost of 3 ongoing projects
• Balance for future land acquisition and general corporate purposes  

Price band: Rs. 121-128 per share

M cap: Rs. 2,376 cr, implying 17% dilution

IPO Date: Mon 16^th Sep to Thu 19^th Sep 2024, Listing Tue 24^th Sep 2024

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

Mumbai Based Real Estate Developer

Arkade Developers develops residential projects, both society re-development and new projects (no slum rehabilitation), mainly in Mumbai’s western suburbs of Vile Parle, Andheri, Goregaon, Malad, Kandivali, Borivali. Having completed 4.5 million sq. ft. construction till date, it clocks an average realization of Rs. 28,500 per sq. ft.

Ongoing & Upcoming Projects

Company has 6 on-going projects of 0.66 million sq. ft. saleable area (half sold), likely to be completed between Dec 2025 to Jun 2027. These projects have revenue potential of Rs. 2,350 cr, of which, Rs. 622 cr has been recognized as revenue till date, based on percentage construction completed.

Another 6 projects are upcoming, with an aggregate saleable area of 0.59 million sq. ft. having Rs. 2,275 cr revenue potential. All these 12 projects are guided to be completed in the next 4 years, which implies potential revenue recognition of nearly Rs. 4,000 cr over the next 4 fiscals.  

Operational Performance

FY24 revenue stood at Rs. 634 cr, with 27% EBITDA margin. However, for analysing a real estate business, pre-sales or booking amount sold is important. Arkade’s FY24 pre-sales rose 13% YoY to Rs. 617 cr, as 2 projects were launched. However, despite industry-wide capital values increasing 7+% in FY24, company’s realization remained flat at ~Rs. 28,500 per sq. ft., as it entered eastern suburbs, where capital value is 10% lower than western suburbs.

Low and Inexpensive Debt

Company has a high equity base of Rs. 154 cr, with a net worth of Rs. 343 cr. Gross debt stands at Rs. 94 cr, half of which is borrowed from promoter, at 12% interest rate, lowering the overall interest cost to 15% pa, quite controlled for company’s size and sector. This also ensures higher net margin of 19% for FY24 and RoE of 47%. Company’s debt equity ratio is low at 0.3:1, which will further contract to 0.1:1 post IPO. Going forward, as operations expand, funding mix remains to be seen.

Comfortable Valuation

Arkade has raised Rs. 20 cr via private placement at Rs. 123 per share in July 2024. On an enterprise value (EV) of Rs. 2,450 cr, IPO is priced at an EV/Pre-sales multiple of 3.9x, on a historic basis. Peer Suraj Estate, whose share price has doubled in the past 3 months, is ruling at 7x multiple, despite only 11% growth in pre-sales in FY24. Another mid-sized Mumbai based real estate developer Keystone (Rustomjee) with average realization of Rs. 19,000 per sq. ft. and pre-sales of Rs. 2,300 cr in FY24, is trading at a multiple of 4.2x.

Negligible debt post listing, high margin, launch of 3 projects so far in FY25 and a booming real estate market ensuring price stability make Arkade’s valuation comfortable, despite small scale and limited geographic presence.