Signatureglobal (India)

Affordable housing provider

A strong pipeline of project in the affordable and lower mid segment housing in the Delhi NCR region

Signatureglobal (India) is a real estate development company, primarily focused on affordable and lower mid segment housing (below Rs 80 lakh housing category) in the National Capital Region of Delhi (Delhi NCR) realty market.

The company have completed 12 projects with a land area of 94.68 acres and an aggregate saleable area of 6.15 million square feet of which 8 projects were in Gurugram, 1 project at Sohna and 3 projects in Karnal. It has sold 10737 units or 98.08% of total units in the completed projects. Currently (as of March 31, 2023), it has ongoing/forthcoming project portfolio aggregating to 38.50 million square feet (msft) comprising 29 ongoing projects (with an aggregate saleable area of 17.21 msft spread over 216.57 acres of land) and 19 forthcoming projects (with an aggregate saleable area of 21.29 msft spread over 379.07 acres of land). Of the ongoing projects, 21 are in the micro market of Gurugram and 8 in Sohna.

The company strategically focused on the affordable housing segment (below Rs 4 million price category) and the middle-income housing segment (between the Rs 4-25 million price category) through GoI and state government policies.

It is the largest real estate company in Delhi NCR in terms of units supplied in the ALMH (affordable and lower mid segment housing) with a market share of 19% during the period 2020 to quarter ended March 2023. For the same period, it had 31% market in ALMH segment and 24% in all the budget categories in the Gurugram micro market alone. Similarly, it is the largest realty developer (in terms of unit supplied) under AHP (Affordable Housing in Partnership)& DDJAY-APHP (Deen Dayal Jan Awas Yojna - Affordable Plotted Housing Policy) schemes in the Gurugram and Sohna region with a market share of 18% and 42%, respectively, from FY2020 to the quarter ended March 2023. Of the 12 completed projects of the company, about nine are AHP projects, 1 is DDJAY-APHP and 2 are DDJAY projects. In FY2023, about 56% of its revenue came from AHP and 44% revenue came from DDJAY-APHP projects.

The AHP and DDJAY-APHP policies of the Government of Haryana is focused on the affordable and mid segment housing. The AHP aims to encourage planning and completion of group housing projects under which apartments of a pre-defined size are to be made available at pre-defined rates and completed within a targeted timeframe to ensure increased supply of affordable housing, while the DDJAY - APHP is intended to encourage the development of high density plotted colonies in the state of Haryana.

Its AHP projects are apartment type housing usually priced below Rs 30 lakh/unit largely located at Gurugram/Sohna and DDJAY-APHP projects being independent floor apartment type housing in a plotted colony equipped with various amenities and usually priced between Rs 40-80 lakh/unit.HUDA capped the sales price for Gurugram for AHP projects at Rs 5000/sft of carpet area with certain exemptions on additional charges (i.e., Rs 1,200/ sft for the balcony area limited to Rs 120,000 per unit). However, projects under the DDJAY - APHP do not have price ceilings, but the average pricing for DDAJY-APHP it is Rs 80000-180000/square yard and independent floors being Rs 6000-10000/sft.

The Gurugram/Sohna micro market though continues to be the prime focus of the company with multiple projects. It has also selectively expanded to Karnal and Manesar in Haryana and Ghaziabad (Raj Nagar Extension) in UP but well within the Delhi NCR region.

The company continues with its intention to utilise affordable housing policies in Delhi NCR and the focus is on projects having residential units with ticket sizes ranging from Rs 4-25 million, based on changing customer preference. As part of its forthcoming projects, it is also developing certain residential projects outside the AHP and DDJAY - APHP, such as residential spaces under the HGHP and NILP, and certain non-residential projects, such as retail spaces, industrial spaces under the Enterprise Promotion Policy (EPP) and Shop Cum Office (SCO) units under the Commercial Plotted Policy.

The integrated real estate development model has capabilities and resources to carry a project from conceptualization to completion. Its project execution capabilities are present across the real estate development value chain. It has developed extensive in-house capabilities right from identification of land, conceptualization of the project to execution of the project involving planning, obtaining regulatory approvals, designing, supervising construction, marketing, and sales, and culminating in delivery of the project. Its expertise across several processes including a centralized raw material procurement system has resulted in cost efficiencies for its operations and has helped deliver its offerings at competitive prices.

The company was promoted by Pradeep Kumar Aggarwal, Lalit Kumar Aggarwal, Ravi Aggarwal, Devender Aggarwal, Pradeep Kumar Aggarwal HUF, Lalit Kumar Aggarwal HUF, Ravi Aggarwal HUF, Devender Aggarwal HUF and Sarvpriya Securities.

The Issue

The offer comprises Fresh Issue of Rs 603 crore and offer for sale (OFS) of Rs 127 crore. The OFS comprises sale of equity shares aggregating upto Rs 127 crore by International Finance Corporation (IFC), the investor selling shareholder.

On post-issue expanded equity, the holding of IFC will stand decline to 2.74% from 5.38% of the pre-issue equity capital.

Objects of the Issue

Of the net proceeds of fresh issue, the company will be using Rs 264 crore towards Re/pre-payment (in full or part) of certain borrowings availed by the company, Rs 168 crore will be used towards fund infusion in certain subsidiaries of the company, i.e., Signatureglobal Homes, Signatureglobal Developers, Singnatureglobal Business Park and Sternal Buildcon for Re/pre-payment (in full or part) of certain borrowings availed by the subsidiaries and the balance is towards inorganic growth through land acquisitions and general corporate purposes.

Gross total debt of the company as of end March 31, 2023, was Rs 1709.75 crore.

Strength

Largest affordable and lower-mid and mid segment real estate developer in Delhi NCR having a proven track record of successful completion and handover of over 12 projects.

SignatureGlobal brand is well-established in Gurugram, Haryana and the larger Delhi NCR region for affordable and mid segment housing projects.

A strong pipeline of ongoing/forthcoming projects across several micro markets of Delhi NCR aggregating to 38.50 msft including 21.29 msft of forthcoming projects (of which 81.98% is in Gurugram/Sohna region). Ability to scale up rapidly.

Strong unmet demand for affordable housing in the country especially in all major metropolitan regions provides greater growth opportunity and market share gain. Its AHP project launched in FY2021/FY2022 witnessed average oversubscription of 2.95 times in the limited subscription period.

End-to-end in-house project execution expertise along with quick turnaround and standardized product offerings. The company have typically launched projects within a period of 18 months from the date of acquisition of land. Employing aluminium formwork technology, which reduces construction time and cost as well as strong and high-quality structures.

Limited unsold inventory in its ongoing and completed residential projects and completed commercial projects. Unsold inventory in completed residential and commercial projects as end of Mar 2023 stood at 0.53% and 16.85% respectively. Of the ongoing projects it sold 82.96% of residential units and 38.99% of commercials units.

All of its projects launched after FY 2021 are either EDGE or IGBC- certified or the company is under process to apply for EDGE certification as of March 31, 2023.

As of March 31, 2023, 34.87% (or 13.42 msf of total 38.50 msf) of the saleable area of its ongoing and forthcoming projects is through collaboration agreements.

Weakness

Operations completely concentrated in NCR realty market and the Gurugram region with no presence in other major real estate markets/cities.

Limited pricing power in AHP projects where States/Union Territories decide on an upper ceiling on the sale price of EWS houses.

The Indian real estate sector is heavily regulated by Central, state and local government and thus any change in policy/regulation related to housing and the affordable housing policy of the state, Central and local government will impact the operations of the company. Recently, the Haryana government amended the DDJAY-APHP pursuant to which the applicability of the DDJAY-AHP was discontinued for the final development plan of Gurugram Manesar Urban Complex and Faridabad. Any delay in approvals too impact the quick turnaround of land purchased by the company.

The real estate business is capital-intensive, and the demand is cyclical in nature.

Have incurred net loss and negative net worth in the past and may not be able to achieve or maintain profitability in the future.

Debt-equity ratio Pre IPO stood at 36 which post IPO declines to 2.6.

There is a lack of specificity around one of the proposed objects of the offer, i.e., funding acquisition of future realty projects and for which it has not specifically earmarked the use of the net proceeds.

Nine of completed projects of the company under AHP have not received a completion certificate. Similarly, of the total ongoing projects, 12 AHP and 14 DDJAY-AHP projects have not received occupation certificate from relevant authorities, as applicable.

Valuation

Consolidated sales for FY2023 were up 72% to Rs 1553.57 crore. With operating profit margin at positive 0.4% as against negative 9.4%, operating profit was Rs 6.05 crore as against a loss of Rs 84.87 crore. Adjusted EBITDA margin expanded by 1090 bps to 13.9% to Rs 215.564 crore after adjusting for impairment of goodwill of Rs 26.385 crore (nil in FY2022), finance cost written off through cost of sales of Rs 117.591 crore (vs. 59.759 crore in FY2022) and gain on fair valuation of derivatives of Rs 33.23 crore (vs. 14.189 crore in FY2022). The net loss after MI was Rs 63.86 crore compared to a loss was Rs 116.41 crore.

It uses Ind AS 115, under which the revenue from real estate projects is recognized only at a point in time upon satisfying the performance obligation as against earlier % completion method as per the Guidance Note on Accounting for Real Estate Transactions. Accordingly, revenue recognition for projects occurs following the receipt of occupancy certificate and after receipt of substantial amount of collections. When the total project cost in its estimates exceeds total revenues from the projects, the loss is recognized immediately.

At upper price band, the P/BV works out to 8.3 times and EV/Sales works out to 4.2 times. In comparison Ashiana Housing that has significant presence in Delhi NCR market including Gurugram with project portfolio in affordable, premium and senior living quotes at a P/BV of 2.7 times and EV/Sales of 5.5 times. Puravankara, another realtor that have significant presence in affordable housing quotes at a P/BV of 1.3 times and EV/Sales of 4.5 times. Keystone Realtors who largely operates in MMR market with projects across all price points quotes at a P/BV of 4 times and EV/Sales of 11.2 times. Suntek Realty that has projects across luxury, mid income and affordable quotes at a P/BV of 2.2 times and EV/Sales of 17.8 times. Macrotech Developers who has projects in both luxury and affordable housing projects quotes at a P/BV of 5.8 times and EV/Sales of 1 times.