IPO Size: Rs. 730 cr 

• Rs. 603 cr fresh issue for Rs. 432 cr debt repayment (of Rs. 1,750 cr gross debt)
• Rs. 127 cr offer for sale (OFS) by IFC, part-selling at 8% loss in 4 years! (5.4% stake to drop to 2.4%)

Price band: Rs. 366-385 per share

• Only 10% for retail and 75% for institutions, as losses in last 3 fiscals

M cap: Rs. 5,410 cr, implying 13.5% dilution

IPO Date: Wed 20^th Sep to Fri 22^nd Sep 2023, Listing Wed 4^th Oct 2023

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

NCR based Real Estate Developer

Established in 2014, Signature Global has the largest market share of 19% in the affordable and lower mid-housing segment (ticket size of up to Rs. 80 lakh) in North India, with 12 completed projects of 6 million sq. ft saleable area. Company mainly operates in Gurgaon and Sohna areas of Haryana, with 17.2 million sq. ft. of saleable area in Ongoing Projects and 21.2 million sq. ft. in Forthcoming Projects.

Regional Concentration

All of company’s projects are built under two Haryana State Government policies (i) Affordable Housing Policy (AHP), 2013 for residential apartments within specified sizes, price points and target time completion (ii) Affordable Plotted Housing Policy for Low and Medium Potential Towns or Deen Dayal Jan Awas 34 Yojana (DDJAY-APHP) for high-density plotted colonies. Changes in State Government policies is the biggest risk for the company, as DDJAY-APHP has been amended to not consider any new projects after 8^th Dec22 in Gurugram and Faridabad districts. Also, as per 23^rd Feb23 order, no new residential projects with stilt plus four floor plans will be approved till further notice. Signature Global has about 7.3 million sq ft saleable area under 3 projects which are impacted by this order.  

Debt-Equity Ratio to be Elevated post IPO too

In recent years, company has mopped up a large land bank (Rs. 976 cr in FY23 alone), which has been largely funded via debt, as long term debt rose 67% YoY to Rs. 1,300 cr as of 31.3.23), which is not a very encouraging sign. Even after part debt repayment and expansion of equity, net debt to equity ratio will remain high at 0.93:1, implying Rs. 606 cr debt on net worth of Rs. 650 cr post listing. Surprisingly, debt credit rating is not mentioned in the RHP, which is BBB for a Rs. 30 cr term loan, which is just about falling in the investment grade.  

Loss Making Company

Company has posted losses for all the years since FY20, with profit before tax of Rs. 57 cr in FY23. Adjusted for Rs. 26 cr goodwill impairment and Rs.33 cr loss on fair value of derivative instruments in FY23, adjusted EBITDA is at Rs. 98 cr, on revenue of Rs. 1,553 cr, implying just 6% EBITDA margin.

While booking value rose 32% YoY to Rs. 3,431 cr in FY23, this was solely due to improved realization, up 66% YoY to Rs. 7,900 per sq. ft., and area booked fell 20% YoY to 4.35 million sq. ft. Real estate cycle is undergoing a boom at present, yet company’s financials are not encouraging. IFC selling its shares at loss only acts like fuel to the fire.

Unattarctive Pricing

Affordable housing peer in Western India Arihant Superstructure, is ruling at an enterprise value of Rs. 1,100 cr on Rs. 400 cr revenue, 30% gross margin (20% for Signature) and Rs 87 cr EBITDA in FY23, translating into an EV/EBITDA multiple of 12.6x. On the other hand, Signature’s Enterprise Value is at Rs. 6,000 cr, on adjusted FY23 EBITDA of Rs. 98 cr, implying EBITDA multiple of 61x. Even if EBITDA is further adjusted for finance cost written off, through cost of sales, FY23 EBITDA multiple of 28x is much on the higher side. It will inappropriate to compare company with larger real estate peers as margins affordable housing are lower than mid-and premium housing segment.