Keystone Realtors IPO opens on Monday: Should you apply or give it a miss?

Keystone Realtors will kick off its Rs 635-crore initial public offer (IPO) on Monday. On the block is a fresh issue of Rs 560 crore and an offer for sale (OFS) of Rs 75 crore, to be sold in the Rs 514-541 price band.

Based on FY22 earnings, the realtor asking for a PE valuation of 45.4 times, EV/Ebitda of 41.7 times and EV/Sales of 5.9 times. Analysts largely have a 'subscribe' rating on the IPO, even as a sharp sequential drop in pre-sales is a cause for worry.

Keystone Realtors carries out property development under the brand name ‘Rustomjee’. The company has 12 ongoing projects and 21 forthcoming projects across the Mumbai Metropolitan Region (MMR). It completed 32 projects till June 30. The company dominates in a few MMR areas with a market share of 28 per cent in Khar, 23 per cent in Juhu, 11 per cent in Bandra East, 14 per cent in Virar, 3 per cent in Thane, and 5 per cent in Bhandup during 2017-21.

The realtor logged revenue and Ebitda clocked 2 per cent and 15 per cent, respectively, over FY20-22. Ebitda margin expanded to 14.1 per cent in FY22 from 11.2 per cent in FY20 . Keystone  reported 208 per cen growth in profit at Rs 135 crore in FY22, led by lower interest cost. For June quarter, it reported revenue of Rs 170 crore, Ebitda margin of 2.2 per cent and PAT of Rs 4.2 crore. The company’s return on equity (ROE) has expanded from 5.2 per cent in FY20 to 14.1 per cent in FY22 while it has reduced its net debt to equity ratio to 1.6 times in FY22 from 9 times in FY20.

Here's what brokerages said on the IPO:

Reliance Securities: Subscribe

Arafat Saiyed of Reliance Securities said Keystone is a prominent player in the real estate space. While the company had been inconsistent with its top and bottom lines for the past few years, he said, the uptick in the

real estate sector and softening of inflationary pressure augured well for Keystone.

"In the view leading position in Mumbai Real estate market, strong pipeline of 35 million square feet of saleable area, strong track record with decent financials, and attractive valuation, we recommend ‘Subscribe’ to the issue," he said.

KRChoksey Shares and Securities: Subscribe

This brokerage said that the realtor has been aggressively reducing debt and is looking to partially utilise 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 1.1 times going ahead, it said.

"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 per cent CAGR over FY20-22 in pre-sales. Keystone, under its brand name Rustomjee is a strong player; the company will benefit from the opportunities available supported by its joint partners," KRChoksey Shares and Securities said.

Choice Broking: Subscribe with Caution

Based on conservative estimate, Choice Broking is expecting Keystone Realtors to report a 15.5 per cent rise in pre-sales collections over FY22-24E. Top-line is expected to increase 23.5 per cent CAGR to Rs 1,936.5 crore in FY24E, it said. That said, higher operating expenditures are likely to lower Ebitda and PAT margin by 378 basis points and 438 basis points, respectively. RoE is estimated at 6.9 per cent in FY24E compared with 8.5 per cent in FY22.

"At higher price band, Keystone is demanding an EV/TTM pre-sales multiple of 2.6 times, which seems to be discount to peer average. Thus the issue seems to be attractively priced. However considering its 76.6 per cent sequential fall in pre-sales business (compared to 3 per cent average increase in the peer’s business), we assign a “Subscribe with Caution” rating for the issue," it said.

The IPO has a lot size of 27 shares. A retail-individual investor can apply for up to 13 lots or 351 shares worth Rs 1,89,891.

The issue will conclude on November 16.

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