Monday, February 15, 2010


The Mumbai Metropolitan Region focused real estate developer is planning to raise around Rs 3000 cr through IPO. The company proposes to issue equity share of Rs 5/ each in the price band of Rs 560 - 600/ share. The issue is likely hit the market in the next two/three weeks. Enam Securities, J P Morgan Stanley, Citi Group Global Markets and Global Trust Capital Finance private limited are the Book Running Lead Managers.


Mangal Prabhat Lodha founded the Lodha group in 1980. In the years following its inception the Lodha group concentrated on developing affordable housing in the suburbs of Mumbai and from 2002 onwards, the group diversified into other segments and regions in the Mumbai Metropolitan region. As of June 30, 2009 the Lodha group had developed approximately 9,771,299 square feet of saleable area. The company has received awards and recognition including being selected as one of India’s top ten builders by Construction World. The company is one of the recognized players in the premium segment.

Currently, the company has 38 ongoing projects, of which 35 projects are in the Mumbai Metropolitan Region and one project each in Hyderabad, Pune and Lonavala, giving the company the presence across different segments and price points. These projects account for an estimated saleable area of approximately 29,871,021 square feet. The company also has another 11 projects in pipe line with an estimated saleable area of approximately 36,228,877 square feet. The ongoing and planned projects would give the company near to medium term cash flow visibility. In all the company has land reserves of approximately 139,206,419 square feet, of which approximately 99.67% is in the Mumbai Metropolitan Region.


The company proposes to utilize the proceeds of the issue towards construction expenses of the ongoing and planned projects, funding certain subsidiaries for prepayment/repayment of their loans and General corporate purposes.


The company’s revenue and net profit has shown study increase during the last three years. As on 31-03-09, the total income of the company stood at Rs 950.60cr and net profit of Rs96.22cr. However, the company’s net profit margin has come down from about 25% in 2007 to as low as 10% in 2009. The company had negative cash flow during 08 and 09.

EPS (in Rs.) Face Value (Rs. 5)*

March 31, 2007   

March 31, 2008   

March 31, 2009   

Weighted Average 3.51

(*Adjusted for the split of equity shares of face value Rs. 100 to face value of Rs. 5, the issuance of bonus.)
As of March 31, 2009, the NAV is 12.21 per share of face value of Rs.5.







The premium of Rs 560-600 is not justified on the Face Value of Rs 5/ share. At Rs, the P/E works out to in excess of 100. The industry peers, DLF, HDIL and UNITECH are quoting at an average P/E of less than 30.


1. The average cost of acquisition of shares by the promoters is less than Rs 2.00/share.

2. The Company is heavily dependent on the performance of, and the prevailing conditions affecting, the real estate market in the Mumbai Metropolitan Region.

3. Lodha Developers experienced rapid growth in the recent past and may not be able to sustain the growth or manage it effectively.

4. The Company has granted unsecured loans to certain entities, which are not the subsidiaries or Group Companies.

5. The Company has incurred substantial indebtedness to finance development of ongoing and planned projects. As of March 31, 2009, the outstanding loans were in excess of Rs. 1000.00crores.

6. The company operates in a highly competitive sector, whose fortunes are neither stable nor certain. Family owned and controlled business enterprise. The profitability has shown declining trend.

7. The group (Subsidiary - Shreeniwas Cotton Mills Limited) had defaulted to State Bank of India in respect of loan availed. The matter is pending in DRT court.

8. The rating agency CARE has awarded grade – 3 for the IPO, indicating average fundamentals.

9. The company had negative cash flow in the last three years.


The company’s operations are presently focused in the Mumbai Metropolitan Region. The supply of land in Mumbai and particularly in south and central Mumbai is limited and acquisition of new land in these and other parts of Mumbai poses substantial challenges and is highly competitive. In addition, due to the limited supply of land, the acquisition of land in Mumbai is costly. The company had acquired land in Mumbai in the past through participation in the auction of mill lands by the National Textile Corporation and in the suburbs of Mumbai through private land acquisitions. There is no assurance that the company will be able to continue to acquire land through such or other means. Due to the increased demand for land in connection with the development of residential, commercial and retail properties, the company may experience increased competition in the attempt to acquire land in the geographical areas in which the company operates and the areas in which they anticipate operating in the future. This increased competition may result in a shortage of suitable land that can be used for development and can increase the price of land.


Investors may better avoid the IPO of Lodha Developers, considering the high premium sought, uncertain sector they operate and other observations made above. .


  1. Reading the above analysis suggests that the writer did no more than read the prospectus - hardly the sort of insightful analysis I was hoping to find when I found this site on the internet.
    Anyways, having been an active investor for almost 20 years across Asia, all I can say is that the Mumbai residential market (in my humble view) represents possibly the regions greatest opportunity for supply demand imbalance. Developers active in this space enjoy an extremely high barrier to entry (look at the challenges that DLF have had in penetrating this market). Looking at their latest acquisition in Wadala, it looks like a very shrewd price - particularly in light of their success at Mahalaxami (Apollo Mills), despite public comments to the contrary. Oddly, when I search comments on that acquisition a few years ago, I see there were many people then who thought they overpaid. Regrettably, as a foreigner, I am restricted from owning this company, but I couldn't help but comment after reviewing what is a shoddy analysis of a company that I would love to own.

  2. Apart from the company reporting decent numbers, there are many other factors that gives better valuation to shares in the exchanges. The group has defaulted to banks in the past. The matter is still in DRT. The valuation sought is on the very high side. Hence, there is no change in our recommendations on the IPO.