Puranik Builders Limited (PBL) has filed the papers for an Initial Public Offering (IPO) with the Securities and Exchange Board of India (SEBI). The company plans to raise Rs 510 crore through fresh equity and the promoters plan to offload up to 945,000 shares through an offer for sale (OFS). This will be the company's third attempt at an IPO.

Previously the company had filed for an IPO in 2018 and 2019, but did not go ahead with the plans.

PBL is among the largest residential real estate developers in the Mumbai Metropolitan Region (MMR) and Pune Metropolitan Region (PMR), in terms of the number of units currently being sold in these regions. PBL also figures in the list of the leading residential real estate developers in the Thane region based on the projects currently being marketed and corresponding units sold. Thane is a rapidly growing region in Mumbai.

With its initial operations focusing on the Thane market, PBL has diversified into other markets today. PBL has been catering to the market for over 31 years, with a focus on building residential projects in the affordable housing segment. The company has a strategy of focusing on the mid-income market segment.

As of July 31, 2021, the company has completed 35 projects in the MMR and PMR. Its current ticket range starts from Rs 47 lakh and goes up to Rs 1.2 crore in the MMR. For the PMR segment, ticket sizes range from 34 lakh to 97 lakh. The low-income segment has ticket prices of around Rs 11 lakh to Rs 34 lakh.

The company prefers to work with a landowner under joint development projects. PBL has carried out 32 projects on its own and 43 projects through partnerships with owners.

The company’s revenues have fallen from Rs 720 crore in financial year 2020 (FY20) to Rs 502 crore in FY21. Its profits too have fallen from Rs 51 crore to Rs 36 crore. The fall in revenue is primarily due to the lockdowns, supply chain disruptions, remote working and slower off-take in the metropolitan real estate sector.

Given the capital intensive nature of the business, the debt-to-equity ratio stands at 3. The company plans to use the IPO proceeds to pay down a part of its debt. In the past, the company has witnessed negative cash flows. Several real estate companies have faced financial issues in the past, with some companies even going bankrupt.

Key Risks

Competition

The real estate sector has many companies operating in the same markets as PBL. Competition makes acquiring prime land, acquiring customers and earning high returns difficult.

Capital Intensive Business

The real estate business requires heavy capital expenditure right in the beginning and a large amount of working capital. If the company is unable to raise funds, it might fail to continue its operations.

High Debt

The company’s debt to equity ratio stands at 3, which is quite high. The company’s indebtedness could be dangerous if it faces cash flow mismatches. A slowdown in the economy could potentially derail its plans.

Interest Rates

Given the company’s high debt, an increase in interest rates could affect the company negatively by increasing its interest expenses. So far, the company has been able to take advantage of low-interest rates, which have allowed it to raise capital at a low cost. Lower interest rates have also incentivised customers to take out loans, and buy homes.

Litigation

Due to the nature of the business, PBL is fighting several cases in court. Any judgement against it could affect PBL’s reputation and finances adversely.

Puranik Builders' Limited IPO

Get Swarajya in your inbox.