Lodha IPO Analysis by GSN Invest Part (1/2) - Notes from Analyst Call

We are doing things a bit differently this time. Our IPO Analysis will be divided into two parts -

Part 1 - Notes from Analyst call (Primarily reporting data & management view) Part 2 - GSN Invest Analysis (Deepdive into business model)

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Management on call: Abhishek Lodha - CEO; Sushil Modi - CFO IPO size: 2500cr primary issue

Price Band: 483-486 per share

Opens: 7th April 2021

Closes: 9th April 2021

Market situation -

Themes: Surplus credit dried up from Tier 2 developers after the 2019 crisis. Balance between supply and demand to be much better controlled going forward. MMR(Mumbai Metropolitan area) is India's largest residential market (INR 960bn), in which Lodha is one of the strongest players. Favorable interest rate regime and rise in consumer preference for branded developers to aid growth going forward.

Demand: India's affordability (housing price to annual income) has been consistently improving from 4.6x in FY14 to 3.3x in FY20. The spread between rental yields (3.4%) and interest rates (6.8%) has contracted that is likely to drive up demand.

Supply: The credit in the system has also contracted from 42,000cr in FY19 to 5,000cr in FY20, which is likely to drive up share of Tier 1 players. The market share of Tier 1 players has grown from 41% to 56% between FY15-18.

Residential business highlights -

Sales: #1 in sales 50,000cr of sales over the last 7 years - 2x over nearest competitor (Godrej - 28500cr, Prestige 27500cr, DLF 21400cr, Sobha 17600cr, Oberoi 10700cr).

Deliveries: #2 in deliveries 57msf over the last 7 years (Prestige - 71msf, DLF 40msf, Godrej 38msf, Sobha 25msf, Oberoi 5msf)

Revenue Mix: 62% of sales in affordable and mid-income housing (39% affordable 23% mid -income). Affordable segment has higher margins than the premium segment (faster churn, cheaper land).

Market share by micro-market: South Central Mumbai (#1, 33.9% market share), , Extended Western Suburbs (#2, 5.4% market share- Market leader at 13.3%), Extended Eastern Suburbs (#1, 20.2% market share), Thane (#1, 19.6% market share), Western Suburbs, Eastern Suburbs, Navi Mumbai (Not present)

Industrial Parks & Commercial Process-

Participating via a JV with ESR (89 acres) and Morgan Stanley (130 acres). Industrial parks, data centers, and warehousing around Palava and Upper Thane. 1500cr of commercial assets. The firm monetizes close to 500cr of commercial assets every year - flows to be used to delever the firm.

Financials -

Falling growth, stable margins: Revenues dropping - from 8,100cr to 6,600cr between FY18 and FY20. Adjusted EBITDA margins are ~30%.

High Debt, deleveraging focus: 18400cr of debt on books. Expect to be at ~12,700cr post IPO (1,500cr of 2,500cr to go towards debt repayment) and UK asset sales. Factors that will help pare down debt in the future- 5.5msf of unsold inventory; 14.8msf ongoing, receivables of 5,000cr from sold projects, UK business to be discontinued - to be wound down going forward, 1,500cr of inflow expected.

(These are primary company views of the market, the business and the financials. GSN Invest will come out with a detailed view on the business by tomorrow. Join us on WhatsApp to get updates on the same).

An ex Goldman Sachs, ex J.P. Morgan analyst, IIM Calcutta alumnus analyzes 100 top Indian companies in detail (Qualitative + Financials). Retail investors can now access this work at a discounted rate - GSN Invest Edu100


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