Signature Global (India) Ltd IPO : Avoid

  • Date

    20th Sept, 2023 - 22nd Sept, 2023

  • Price Range

    Rs. 366 to Rs. 385

  • Minimum Order Quantity

    38

Signature Global (India) Ltd. is one of the largest real estate development companies in the Delhi NCR region 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%. 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. 25 million private category) through the central government and state government policies. Most of the company’s completed projects, ongoing projects and forthcoming projects are located in Gurugram and Sohna in Haryana, with 88.5% of their saleable area located in this region as of March 31, 2023, and almost all of their projects have been, or are being, undertaken under the AHP (Affordable Housing Policy) or the DDJAY – APHP (Affordable Plotted Housing Policy or the Deen Dayal Jan Awas Yojana). In FY23, they completed an aggregate developable area of 7.64 million square feet in the completed projects and an additional 1.37 million square feet in its ongoing projects, comprising 11,427 residential and 932 commercial units, for which the company has received occupation certificates. The company has adopted an integrated real estate development model, with in-house capabilities and resources to execute projects from inception to completion, enabling it to offer competitive prices. They can efficiently turn around projects on land that they tie up, and they have typically launched projects within 18 months from the land’s acquisition date.

Objects of the issue:

The net proceeds from the fresh issue will be used towards the following purposes:

  • Re-payment or pre-payment, in whole or in part, of certain borrowings availed by the company;
  • Infusion of funds in certain of their subsidiaries, namely Signature Global Homes, Signature Infrabuild, Signature Global Developers, and Sternal Buildcon, for re-payment or pre-payment, in whole or in part, of certain borrowings availed by their subsidiaries;
  • Inorganic growth through land acquisitions and general corporate purposes.

 

Investment Rationale:

One of the leading affordable and lower-mid and mid-segment real estate developers in Delhi NCR and Haryana.

Signature Global is one of the largest real estate development companies in Delhi NCR in affordable and lower mid-segment housing, in terms of units supplied in Gurugram (in the below Rs. 8 million price category) between 2020 and the three months ended March 31, 2023, they had a market share of 31% (Source: Anarock Report). The company has focused on the affordable and lower mid segments in Delhi NCR, which have significant demand. All their projects are located in Delhi NCR, considered among India’s top two markets in sales in the three months ending March 31, 2023. They are one of the largest real estate developers under the AHP in the Gurugram and Sohna region, with a market share of 18% in total supply of units from 2020 to the three months that ended March 31, 2023. In addition to multiple projects in Gurugram, they have also selectively expanded in rapidly growing towns in Delhi NCR in the vicinity of Gurugram, including Karnal and Manesar in Haryana, as well as in Raj Nagar Extension, Ghaziabad in Uttar Pradesh. The company is well-positioned to capitalise on the significant demand for affordable housing projects in these micro-markets.

Standardised product offerings, quick turnaround, and end-to-end in-house project execution expertise.

With years of experience, the company has implemented standardised business processes that have enabled it to offer quality houses at competitive prices to its customers. Signature Global has achieved low design costs and efficiencies, a relatively short development cycle, and construction timelines due to its standardised design, technical specifications, and layout plans. In the seven AHP projects involving 5,338 residential units they have launched between FY21 and FY23, they have undertaken negligible variation in the sizes and configurations of the units. The company has typically completed projects within 18 months of land acquisition. Their turnaround capabilities have enabled their land resources to generate cash flows relatively quickly following acquisition to support further developments.

Valuation and Outlook:

The demographic shift has positively impacted the demand for residential real estate, and urbanisation has further contributed to the need for housing in urban areas. The government’s policy support, supportive intervention, and increased household income have improved affordability in the last two and a half decades. The rise in household income with almost steady ticket price levels has increased the affordability of housing units. While many locations in the NCR region can be identified as affordable housing destinations, the Gurugram-Sohna region collectively accounted for a large share of the affordable units supplied in NCR (98% for 2022 and 84% for the first quarter of 2023). Post-COVID-19, the demand for individual floors (builder floors) has increased and is likely to witness considerable demand and absorption in coming years. Signature Global is expected to benefit from these industry tailwinds as it has an established distribution network targeting affordable and mid-segment customers. The company has a dedicated in-house direct sales team responsible for sourcing leads. The company has a track record in execution and continued construction that has been instrumental in its consistent sales and performance despite challenging market conditions due to the COVID-19 pandemic. They have generated positive operating cash flows despite incurring significant business development expenses for growth and without significantly increasing the leverage. Though the company has a good market share in its focused regions, its continued losses in the last three financial years make us cautious about the IPO. We, therefore, recommend an “Avoid” rating for the issue.