Keystone Realtors IPO: 5 Things to Know

The real estate sector is all set to boom in India in the long term.

Why do we say this?

India is getting wealthier at an ever-increasing rate. People are demanding premium, comfortable living spaces. Not to mention second homes and vacation homes.

One needs to only look to China's massive real estate boom to understand the long-term potential of real estate in India.

However, one also needs to be careful while selecting stocks from the realty sector.

The biggest drag is high debt companies. With interest rates moving up, investors need to be wary of realty companies with the tendency to pile up debt.

Also, large players always have the upper hand when it comes to realty sector.

Taking benefit of the opportunity in the real estate sector, one of the popular brands - Rustomjee is all set to go public.

Keystone Realtors - the owner of the Rustomjee brand went live with its public offer today.

The real estate player's IPO opened for subscription on 14 November 2022, i.e. today. Here are the key details about the IPO.

Issue period: 14 November 2022 to 16 November 2022

Issue size: Rs 6,350 m (fresh issue for Rs 5,600 m offer for sale for Rs 750 m)

Price band: Rs 514 to Rs 541 per equity share

Bid lot: 351 shares and multiples thereof

Application limit: Minimum one lot maximum thirteen lots

Face value: Rs 10 per equity share

The company has reserved not less than 50% shares of the offer for qualified institutional buyers (QIB). It has reserved not less than 15% for non-institutional buyers (HNI). Hence not more than 35% of shares are available for retail individual investors.

Tentative IPO allotment date: 21 November 2022

Tentative listing date: 24 November 2022

#1 About the company

Incorporated in 1995, Keystone Realtors is one of the prominent real estate developers. The company is engaged primarily in the business of real estate construction, development and other related activities in India.

As of 30 June 2022, the company had 32 completed projects, 12 ongoing projects and 21 forthcoming projects across the Mumbai Metropolitan Region (MMR).

These include a comprehensive range of projects under the affordable, mid and mass, aspirational, premium and super premium categories, all under the Rustomjee brand.

As of 30 June 2022, the company has developed over 280 buildings and homes for over 14,000 families.

#2 Financial position of Keystone

In the financial year 2021-22, the company's revenue increased by 10.7%. But on the other head, net profit margin, return on net worth and earnings per share (EPS) all have reduced.

Rising interest rates and raw material costs have affected the profit margins. However, to mitigate the impact of rising interest rates, the company has aggressively reduced its debt.

It has significantly brought down its net debt-to-equity ratio from 5.9 in financial year 2019-20 to 1.5 in financial year 2020-21.

Take a look at the table below:

Financial snapshot

Particulars	31-Mar-22	31-Mar-21	31-Mar-20
Revenues (Rs m)	13,029.7	11,772.7	12,685.9
Revenue Growth (%)	10.7%	-7.2%
Expenditure Before Tax	11,164.4	8,760.2	12,055.9
% of Total Income	85.7	74.4	95.0
Net Profit	1,358.3	2,318.2	144.9
Net Profit Margin (%)	10.4	19.7	1.1
Net Worth	9,631.5	8,238.4	2,801.2
Return on Net Worth (%)	15.0	38.8	5.1
Basic Earnings per share (Rs)	14.0	31.0	2.2

Data Source: Company's Red Herring Prospectus (RHP)

#3 Peer comparison

As per the company's RHP, Macrotech Developers, Godrej Properties, Oberoi Realty, and Sunteck Realty are its listed peers.

Peer Comparison

Company	Total Income (2022) (Rs m)	Net Profit	EPS (Basic) (Rs)	Return on Net Worth (%)
Keystone Realtors	13,029.7	1,358.3	14.0	15.0
Macrotech Developers	95,791.7	12,075.0	26.3	10.3
Godrej Properties	25,856.9	5,393.0	12.7	4.1
Oberoi Realty	27,524.2	8,075.0	28.8	10.1
Sunteck Realty	5,340.2	239	1.8	0.9

Data Source: Company's Red Herring Prospectus (RHP)

#4 Arguments in favour of the business

• It has a strong brand presence.
• It has experience in developing various types of projects, like lifestyle projects, high-value standalone buildings, etc.
• It has an asset-light and scalable model resulting in profitability.
• It makes efficient use of technology to enable better planning and execution.
• It has a team of experienced promoters, qualified senior management, and good corporate governance.

#5 Risk factors

• Rising inflation has taken a hit on the profit margins. If inflation continues to rise the company's financial position may have a major impact.
• It has a huge amount of unsecured loans (Rs 5,949.2 m) payable by demand in its balance sheet.
• he company operates in a capital-intensive business. Hence, it requires significant expenditure for real estate project development. Therefore, it is dependent on the availability of real estate financing, which may not be available promptly or if available it may not be on acceptable terms.
• The company has a strong MMR presence, but it is limited to Mumbai Metropolitan. It does not have a wide presence in the country which means it has limited business opportunities.

To conclude

In 2021, we saw a flurry of IPOs. As liquidity in the market was abundant, investors were making easy money through IPOs. The initial public offers received huge response which resulted in massive gains on listing day.

But with the beginning of 2022, IPO market was under a dark cloud. Tightening liquidity, geopolitical tensions, and supply chain disruption took a toll. Losses on the listing day were like the last nail in the coffin for IPOs.

LIC, Paytm, and Nykaa have proven to be disastrous investment choices for investors.

And the IPO markets actually rested in peace for 80 days, as companies were afraid to get a negative response from the market.

However, the situation is different now. As sentiment has turned bullish, companies are looking to come out with their IPOs. Just last week, we saw four new companies raising funds via an IPO.

One this has surely changed. Investors have become more conscious.

No one is blindly applying for IPOs as they saw what happened with LIC, Zomato and the likes.

In case of Keystone Realtors, the company has a strong brand presence, which aids in increasing the sales.

Also, the company's margins have a scope of expansion because of reduced debt, controlled inflation and a strong demand in the real estate sector.

However, the company has a slower growth compared to its peers.

Stay tuned to get further updates on this IPO and all upcoming IPOs in the market.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...