Brokerage houses Reliance, KR Choksey, Choice Securities recommend ‘Subscribe’ to Rustomjee-Keystone Realtors’ IPO

Rustomjee raises Rs. 190 cr from ADIA, St. Capital, Morgan Stanley & other domestic funds

Brokerage houses Reliance Securities, KR Choksey and Choice Securities have recommended Subscribe to the forthcoming IPO of Rustomjee Keystone Realtors hailing its asset-light business model and attractive valuations.

In the view of a leading position in Mumbai Real estate market, strong pipeline of ~35mn sq. ft. of saleable area, strong track record with decent financials, and attractive valuation, Reliance Securities recommended ‘SUBSCRIBE’ to the public issue of Keystone Realtors (Rustomjee).

Keystone is a prominent player in the real estate space, says the Reliance Securities IPO note. Based on FY22 earnings, the company is valued at 45.4x P/E, 41.7x EV/EBITDA and 5.9x EV/Sales. While the company had been inconsistent with its top and bottom lines for the past few years, Reliance Securities analysts believe that the uptick in the real estate sector and softening of inflationary pressure augured well for Keystone.

With a strong brand and upcoming construction opportunities, KR Choksey analysts believe it is well placed, and as a result, they recommend that Keystone Realtors Ltd IPO be rated ‘SUBSCRIBE’.

At the upper price band of INR 541 and EPS of INR 14.0 for FY22, the P/E ratio is 38.8x. The current value is appealing from a long-term view point, given the average industry P/E of 96.5x, according to the company RHP. The company is trading at a P/B ratio of 5.8x its FY22 book value, with the highest RONW among its peers at 15.0%, says the KR Choksey report.

Keystone Realtors Ltd. is one of the prominent players in the real estate sector in India and present across the Mumbai Metropolitan Region with comprehensive, affordable projects and premium & super-premium categories, says the KR Choksey report. The company has an asset-light business model and is involved in redevelopment projects and also projects under joint partners.

As a result, the realty industry is expected to see a healthy uptick in redevelopment projects. Keystone, under its brand name Rustomjee is a strong player; the company will benefit from the opportunities available supported by its joint partners, adds the KR Choksey IPO note.

The company has been aggressively reducing debt and has successfully bought down its net debt-to-equity ratio from 7.7x in FY20 to 1.1x as of June30, 2022, as per the KR Choksey IPO note. The company is expected to partially utilize the IPO fund to reduce the debt on the books further while balancing its new projects in the pipeline. The leverage ratio is expected to remain stable at~ 1.1x going ahead. On the margins front, the company has ample scope for expansion as the current margins include few one-off expenses, which impacted the margins. Thus, the management is confident to deliver competitive margins in the coming years. Keystone has reported a growth of 61.7% CAGR over FY20-22 in pre-sales.

Choice Securities IPO note on Keystone Realtors Ltd. (KRL) observes that the the issue seems to be attractively priced. At higher price band, KRL is demanding an EV/TTM pre-sales multiple of 2.6x, which seems to be discount to peer average, says the Choice IPO note.

Based on conservative estimate, Choice Securities analysts are forecasting a 15.5% rise in pre-sales collections over FY22-24E. Top-line is expected to increase by 23.5% CAGR to Rs. 1,936.5cr in FY24E, as per Choice. Higher operating expenditures are likely to lower EBITDA and PAT margin by 378bps and 438bps, respectively. RoE is estimated at 6.9% in FY24E, compared to 8.5% in FY22. Choice Securities assigned a “Subscribe with Caution” rating for the issue.

As of 30th Jun. 2022, 95.6% of the completed projects were executed under asset light model, says the Choice report. Moreover, 92.8% and 77.7% of the on-going and forthcoming projects are under this asset light model. From inception until 30th Jun. 2022, the company has entered into 57 joint ventures/joint development arrangements/agreements/development agreements with landowners, residential societies, as well as other real estate developers.

Choice hails the marquee partners of Rustomjee. In the past, KRL received equity investments from Giza (an entity advised by Xander Investment Management Pte. Ltd.) and HDFC Capital Affordable Real Estate Fund-1 for its township projects located in Thane and Virar, respectively. Currently the company has strategic partnerships with investors such as Lipalton Pte. Ltd. and HDFC Capital Affordable Real Estate Fund-3.

On the eve of the public issue opening on Monday 14 November, Keystone Realtors Limited, which is a prominent real estate developer that operates under the brand ‘Rustomjee’, has allotted 35,21,255 equity shares to 16 anchor investors and raised Rs. 190.50 crore ahead of the Company’s proposed IPO at the upper price band of Rs. 541 per share. The Company intends to raise a total of Rs. 635 crore in the IPO, which is the first real estate IPO to hit the markets since December 2021.

The anchor book saw participation from a wide variety of investors.  Abu Dhabi Investment Authority, Morgan Stanley and Saint Capital accounted for nearly 35 per cent of the anchor investor portion. Domestic mutual funds such as Aditya Birla Mutual Fund, IDFC Mutual Fund, Tata Mutual Fund and Quant Mutual Fund also participated in the anchor investor portion. SBI Life Insurance and HDFC Life Insurance Company too were part of the anchor investors.