Keystone Realtors

Mumbai-focused realty player

Strong pipeline of ongoing and forthcoming projects to drive growth

Keystone Realtors is one of the prominent real estate developers in Mumbai Metropolitan Region (MMR). As of June 30, 2022, the company had developed 20.22 million square feet (msf) area including infrastructure spread across 32 projects or 280 building and home to over 14000 families.

The company has strong experience in developing lifestyle projects, high value and affordable residential buildings, premium gated communities and fully integrated townships, corporate parks, retail spaces, schools, iconic landmarks, re-developments, and various other real estate projects including stalled projects.

The company is one of the prominent real estate developers (in terms of absorption in number of units) in the micro markets that it is has presence such as   Juhu, Bandra East, Khar, Bhandup, Virar and Thane.

The company as of June 30, 2022, end have 10 ongoing projects aggregating to a saleable area of 5.73 million square feet (msf) across super premium (2.34 msf), premium (0 msf), aspirational (0.43 msf), mid & mass (2.37 msf) and affordable (0.59 msf).  Similarly, as of June 30, 2022, end the company have 17 forthcoming projects   aggregating to a saleable area of 22.41 million square feet (msf) across super premium (0.45 msf), premium (0.19 msf), aspirational (0.95 msf), mid & mass (9.65 msf) and affordable (11.17 msf). 

Further, of the ongoing projects totalling 9.26 msf of developable area 1.72 msf is in western suburbs, 0.33 msf is in Eastern Suburbs, 4.48 msf in south central Mumbai, 0.66 msf in extended western suburbs and 2.07 msf in Thane.

 Similarly, of the 26.37 msf of developable area of forthcoming projects about 3.36 msf are in western suburbs, 4.87 msf is in extended western suburbs, 1.43 msf in south central Mumbai, 2.41 msf in extended eastern suburbs and 14.30 msf in Thane.  Unsold stocks in completed projects were 114 units and 1748 units in ongoing projects.

It has adopted an integrated real estate development model, with capabilities and in-house resources to execute projects from its initiation to completion. It has developed in-house competencies for every stage of the property development life cycle, commencing from business development, which involves identification of land parcels and the conceptualization of the development, to execution, comprising planning, designing, and overseeing the construction activities, marketing, and sales.

The business model of the company is real estate development through joint development, re-development through agreements with landowners or developers or societies, which requires lower upfront capital expenditure compared to direct acquisition of land parcels. This development approach enables it to simultaneously undertake multiple projects and reduce project risks associated with land acquisition. Of the completed 20.22 msf of developable area about 95.55% is through JDA, DA, JV, DM, redevelopment, and SRA.

Similarly of the ongoing and forthcoming projects as end of Jun 2022 of 9.26 msf and 26.37 msf of developable area 92.85% and 77.73% respectively is through JDA, DA, JV, DM, redevelopment, and SRA.

The company currently have partnerships with strategic investors such as Lipalton Pte Ltd. (a wholly-owned subsidiary of Keppel Land Ltd) for Rustomjee Urbania, an integrated township located in Thane, and as HDFC Capital Affordable Real Estate Fund – 3 (managed by HDFC Capital Advisors Limited as its investment manager). In the past, the company have received equity investments from Giza (an entity advised by Xander Investment Management Pte. Ltd.) and HDFC Capital Affordable Real Estate Fund – 1 (managed by HDFC Capital Advisors Limited as its investment manager) for Rustomjee Urbania, an integrated township located in Thane and for its township in Virar, respectively.

Posses proven ability to develop townships with mixed uses and generate recurring revenue from such development as annuity.

The Issue

The offer comprises fresh issue as well as offer for sales (OFS).   The OFS comprises sale of equity shares aggregating upto Rs 75 crore [Rs 37.5 crore by Bomon Rustom Irani, Rs 18.75 crore by Percy Sorabji Chowdhry and Rs 18.75 crore by Chandresh Dinesh Mehta all promoter selling share holders].  Fresh issue comprises issue of equity share aggregating upto Rs 560 crore.

On post issue expanded equity the holding of promoter selling shareholders will stand decline to 87.68% from 93.82% pres issue equity capital.

Objects of the Issue

Of the net proceeds of fresh issue, the company will be using Rs 341.6 crore towards repayment and prepayment, in full or part, of certain borrowings availed by the company and subsidiaries and balance amount will be utilized to fund acquisition of future real estate projects and general corporate purposes. Total financial indebtedness as end of October 15, 2022, stood at Rs 15,21.796 crore.

Strength

Well established brand in the MMR realty market with proven track record of successful completion and handover of over 32 projects.  On the back of strong brand and superior construction quality the company commands premium pricing in MMR micro markets where it has its projects located.

Has strong pipeline of diversified suite of ongoing and forthcoming projects across a wide range of price points, and a presence in several micro markets in MMR.

Asset-light and scalable model enables it to capitalize on strategic market opportunities well apart from leading to   stable financial performance

Demonstrated project execution capabilities with in-house functional expertise

Weakness

The Indian real estate sector is heavily regulated by central, state, and local governmental authorities and change in laws and rules will impact the performance of the company. Moreover, the realty demand is cyclical in nature.

Operations completely concentrated in MMR realty market with no presence in other major real estate markets/cities.   

Do not own the brand name ‘Rustomjee’, which is registered in the name of   Promoter Boman Rustom Irani.

Statutory auditors of the company have highlighted a material uncertainty with respect to the ability of our joint controlled operations entities, Fortune Partners and Lok Fortune JV. 

Valuation

Consolidated sales for FY2022 were up 50% to Rs 1269.37 crore. Higher sales together with 70 bp expansion in operating margin (OPM) to 14.1% led to 58% growth in operating profit to 179.34 crore. Eventually, the net-profit after minority interest was down 55% to Rs 139.62 crore hit largely by lower EO income. 

For the quarter ended June 2022, the net profit after MI was Rs 4.97 crore on a sales revenue of   Rs 168.56 crore. The trailing twelve-month sales were Rs 1354.18 crore and the net profit after MI was Rs 144.26 crore. 

The offer at upper price band works out to 42.6 times of its TTM EPS as against 23.2 times, 34.9 times, 90.2 times and 122.4 times for Oberoi Realty, Macrotech Developers, Godrej Properties and Sunteck Realty.

At upper price band, the P/BV works out to 3.8 times, and it is against 3.1 times for Oberoi Realty, 3.8 times for Macrotech Developers, 4 times for Godrej Properties, and 2.1 times for Sunteck Realty. 

At the upper price band, the EV/sales works out to 5.4 times.   On the other hand,Oberoi Realty, Macrotech Developers, Godrej Properties and Sunteck Realty are quoting at EV/sales of 10.4, 5.6, 19.9 and 11.6 times of their TTM sales for the period ended Jun 2022.