Highlights
| Issue Size –: 32,031,250 shares | Issue Open/Close – 16 Sept / 19 Sept, 2024 |
| Price Band (Rs.) 121 – 128 | Issue Size (Rs.) – 4,100 mn |
| Face Value (Rs) 10 | Lot Size (shares) 110 |
Arkade Developers Limited (ADL) incorporated on 1986, is real estate developer which develops premium aspirational lifestyle residential premises in Mumbai, Maharashtra. Their business can broadly be classified into two categories: (i) development / construction of residential premises on land acquired by the Company (New Projects) and (ii) redevelopment of existing premises (Redevelopment Projects).
As of Q1FY25 the have developed 2.20 million square feet of residential property and between 2017 and Q1 2024, they have launched 1,220 residential units and sold 1,045 residential units in different markets in MMR, Maharashtra.
From CY03 to March 2024, they have successfully completed redevelopment of 10 projects in the western suburbs of Mumbai and 1 project in south-central Mumbai (through a partnership firm in which they hold the majority stake) with a combined constructed area of 1,000,000 square feet (approx.). This track record has established them as one of the major players of redevelopment in the Mumbai western suburbs.
Out of the total proceeds of Rs. 4,100 mn, Rs. 2,500 mn would go towards a part of the costs to be incurred in the development of their Ongoing Projects, and their Upcoming Projects. and Rs. 1,600 mn would use for general corporate purpose.
Key Highlights
- Consistent annual rise in MMR both new residential supply and absorption rates is forecasted until 2026. It is anticipated that new launches will outpace housing sales in 2025 and 2026, indicating a significant increase in housing units entering the market. Pricing in the housing market is expected to grow from 13,700 sq.ft. in 2023 to 16,234 sq.ft in 2026.
- In the last 2 decades they have completed 28 projects (including 11 projects on a stand-alone basis (including 2 projects executed through partnership), 8 projects executed by their Promoter through his proprietorship, M/s Arkade Creations, and 9 projects through joint development arrangements with other third parties) aggregating more than 4.5 million square feet of development and have catered to more than approximately 4,000 customers.
- The company currently, developing approximately 3.7 million square feet across 6 Ongoing Projects. As of Q1FY25 out of their 6 projects that are currently under-development 3 are New Projects and 3 are Redevelopment Projects constituting 50 pct each of their under-development projects.
- Out of the 28 projects completed by them 23 projects were completed before the introduction of RERA and the remaining 5 projects completed by them were after introduction of RERA which were completed by them within the agreed timelines.
- Their key strategies include (i) Continue to expand in the eastern region of MMR, Maharashtra (ii) Moving up the value chain to premium / luxury residential premises (iii) Continue to focus on their blended business model.
- Sales of the company has grown by 66.52 pct CAGR during the period FY22-24 and EBITDA and Profit grew 55.96 pct CAGR and 55.48 pct CAGR over FY22-24. During FY24, company reported sales of Rs. 6,347 mn which grew by 188 pct YoY while EBITDA rose by 147.90 pct YoY to Rs. 1,694 mn as EBITDA margin slipped from 23.06 pct in FY23 to 22.21 pct in FY24. As of FY24 the company reported profit of Rs. 1,228 mn which was grew by 141.91 pct YoY.
Key Risk
- The company rely on third party contractors whom they do not control to construct their projects. Any delay or failure on the part of such contractors to adhere to their obligations could adversely affect financial condition and business.
- ADL entire business is concentrated within the MMR region. Any event or circumstance that adversely affects the real estate market in the MMR region will have an adverse effect on their business.
Financial Performance
| Particulars | FY22 | FY23 | FY24 |
| Sales (Rs. mn) | 2,289 | 2,202 | 6,347 |
| EBITDA (Rs. mn) | 700 | 683 | 1,694 |
| EBITDA Margin (%) | 30.56% | 31.04% | 26.68% |
| Profit (Rs. mn) | 508 | 508 | 1,228 |
| Profit Margin (%) | 22.21% | 23.06% | 19.35% |
| Debt to Equity Ratio (x) | 0.43 | 0.74 | 0.21 |
| Interest Coverage Ratio | 16.15 | 53.12 | 53.8 |
| ROE (%) | 40.90% | 29.02% | 46.90% |
| ROCE (%) | 46.17% | 24.30% | 47.34% |
Peer comparison based on Y24 Financials
| Peer Comparison | Arcade Developers Ltd. | Keystone Realtors Ltd. | Godrej Properties Ltd. | Macrotech Developers Ltd. | Suraj Estate Developers Ltd. |
| Sales (Rs. mn) | 6,347 | 22,223 | 30,356 | 1,03,161 | 4,122 |
| EBITDA (Rs. mn) | 1,694 | 1,919 | 11,967 | 27,113 | 2,364 |
| EBITDA Margin (%) | 26.68 | 8.63% | 39.42% | 26.28% | 57.35% |
| Profit (Rs. mn) | 1,228 | 1,110 | 7,471 | 15,542 | 675 |
| Profit Margin (%) | 19.35 | 5.00% | 24.61% | 15.07% | 16.37% |
| Debt to Equity Ratio (x) | 0.21 | 0.6 | 1.07 | 0.44 | 0.82 |
| Interest Coverage Ratio | 53.8 | 4.6 | 7.57 | 5.23 | 1.68 |
| ROE (%) | 46.9 | 6.40% | 7.76% | 10.32% | 22.97% |
| ROCE (%) | 47.34 | 7.00% | 8.86% | 12.67% | 30.31% |
Valuation
Arkade is a leading real estate developer with a legacy spanning over three decades, renowned for crafting luxurious residential and commercial properties. The company currently, developing approximately 3.7 million square feet across 6 Ongoing Projects. At the upper end of the price band of Rs. 128 the issue is priced at a PE of ~19.2x its FY24 earnings. The issue looks fully priced. One can avoid this issue.
Also read: Why Is Financial Advisory Important?
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