Arkade Developers IPO: 2.11x Subscribed, Promising Opportunity?

Arkade Developers IPO has been subscribed 2.11 times on the first day. The company is a Mumbai-based real estate firm with a focus on high-end residential properties. The IPO is valued at ₹410 crore and is expected to list on the stock exchange with a P/E ratio of around 19x.

CONTENTS:

• IPO of Arkade Developers launched today.
• Arkade Developers launches IPO.
• Arkade IPO subscribed 2.11 times.
• Arkade focuses on high-end Mumbai properties.
• Arkade IPO well-positioned for growth.
• Subscribe Arkade IPO at ₹6.61.
• Arkade IPO ₹410 crore issue.
• Arkade IPO: Grey market premium +₹80.

Arkade Developers Ltd is set to launch its initial public offering (IPO) on the busy primary market today, Monday, September 16. The company has raised ₹122.40 crore from anchor investors in advance of its IPO, which is valued at ₹410 crore. The shares are priced between ₹121 and ₹128 each. The public subscription period will run until Thursday, September 19.

The IPO’s lot size is 65 shares, and subsequent purchases must be in multiples of 65 shares. Of the total shares available, 50% are allocated to qualified institutional buyers (QIB), 15% to non-institutional investors (NII), and 35% to retail investors. Additionally, employees have been granted shares worth up to ₹2 crore, with a discount of ₹5 per share.

Arkade Developers, a rapidly growing real estate firm with a significant footprint in Mumbai, has developed 1.80 million square feet of residential space as of July 31, 2023. This includes properties developed through partnerships where Arkade holds a majority stake.

Between 2017 and Q1 2023, the company launched 1,040 residential units and sold 792 units across various markets in the Mumbai Metropolitan Region (MMR) in Maharashtra.

Arkade Developers reported revenues of ₹224.01 crore, ₹237.18 crore, and ₹113.18 crore for the fiscal years 2023, 2022, and 2021, respectively.

The red herring prospectus (RHP) lists several comparable publicly traded peers: Keystone Realtors Ltd, with a P/E ratio of 74.85; Godrej Properties Ltd, with a P/E ratio of 111.53; Macrotech Developers Ltd, with a P/E ratio of 78.46; and Suraj Estate Developers Ltd, with a P/E ratio of 40.92.

On the first day of Arkade Developers’ initial public offering (IPO), by 12:30 IST, the issue was subscribed 2.11 times, according to BSE data.

The IPO attracted bids for 5,01,91,020 shares, compared to 2,37,75,719 shares available. Retail investors’ portion was subscribed 3.35 times, while the non-institutional investors’ segment was subscribed 1.98 times. The qualified institutional buyers (QIBs) portion has yet to be fully subscribed. The employee portion was subscribed 3.56 times.

According to brokerage research, Arkade Developers is a real estate firm that focuses on high-end residential properties in Mumbai, Maharashtra, which is a major commercial hub in India. The company primarily concentrates on new developments and redevelopment projects, with a strategic emphasis on the Mumbai Metropolitan Region (MMR), particularly the western suburbs. Over the past 20 years, Arkade Developers has successfully completed 28 projects. The company’s revenue and profitability have seen substantial growth due to a steady increase in the number of units sold.

Arkade Developers aims for an EV/Sales ratio of 3.2x, which is below the average for its peers, at the higher end of its pricing range. While the company has recently expanded into Mumbai’s eastern suburbs, its historical focus has been on the western suburbs of the Mumbai Metropolitan Region (MMR).

With a strategic growth plan, a nearly debt-free status, and a track record of timely project delivery, Arkade Developers is well-positioned for long-term, sustainable growth. Consequently, the brokerage recommends a “SUBSCRIBE” rating for this IPO.

According to the brokerage firm, with a post-issue share price of ₹6.61, Arkade Developers is expected to list on the stock exchange with a P/E ratio of around 19x, leading to a market capitalization of ₹2,376.14 crore. This is significantly lower compared to its peers, such as Keystone Realtors Limited, Godrej Properties Limited, Macrotech Developers Limited, and Suraj Estate Developers Limited, which are trading at P/E ratios of approximately 99x, 88x, 62x, and 42x, respectively.

The brokerage recommends a “Subscribe” rating for this IPO, citing Arkade Developers as a leading and well-established player in the Mumbai Metropolitan Region (MMR) with a valuation that is relatively reasonable compared to its peers.

The Arkade Developers IPO, valued at ₹410 crore, involves a fresh issuance of 32,031,250 equity shares with a face value of ₹10 each. There is no “offer for sale” component included in this IPO.

According to the red herring prospectus (RHP), the company, in consultation with the book running lead manager (BRLM), has completed a Pre-IPO Placement of 1,626,016 equity shares at ₹123 per share (including a ₹113 premium per share), raising ₹20 crore. As a result of this Pre-IPO Placement, the size of the fresh issue was reduced from the originally planned ₹430 crore to the current ₹410 crore.

The IPO is being managed by Unistone Capital Pvt Ltd as the book running lead manager, with Bigshare Services Pvt Ltd serving as the registrar for the issue.

As of today, the grey market premium (GMP) for the Arkade Developers IPO is +80, meaning the shares are trading at a premium of ₹80 in the grey market, according to investorgain.com.

Given the upper end of the IPO price range and the current grey market premium, the estimated listing price for Arkade Developers shares is projected to be ₹208 each. This is 62.5% higher than the IPO price of ₹128.

The ‘grey market premium’ reflects investors’ willingness to pay more than the official issue price.