Wednesday, 22 March 2017

Is real estate looking up? Shankara Building IPO may be signal of better times ahead

The IPO Shankara Building Product, which hit the market today, is seen by some industry watchers as sign of improved investor confidence in the sector

The real estate sector is poised to look up as industry practices turn more customer-friendly, incomes rise and investor confidence improves.

The initial public offering of home improvement and building product company Shankara Building Product (SBP), which hit the market on Wednesday, is seen by some industry watchers as a sign of improved investor confidence in the sector.

Remember, the company had previously filed a DRHP in December 2007 but did not go ahead with the public offering.

Meanwhile, state-run Hudco has recently received capital markets regulator Sebi's approval to raise funds through an initial share sale as part of the government's disinvestment drive, PTI reported.

SBP’s initial share sale commenced on Wednesday and will close on March 24. The price band for the IPO is Rs 440-460 per share.

The real estate industry has been under pressure ever since 2008, but finally, it seems to be on the verge of the resurgence, which may not be a U-turn, though.

There are expectations that the Real Estate (Regulation and Development) Act (RERA) will be rolled out by the middle of calendar 2017. In recent times, Indian courts have delivered a series of judgments favoring real estate buyers, indicating that customers can hope for a better deal in realty transactions.

Ramesh Nair, CEO & Country Head of JLL India, says things are finally looking up for the industry. “Individual purchasing power has improved over the last few years, with incomes rising faster than home prices. Also, homebuyer confidence is set to improve on the back of several sentiment-building measures,” Nair said in a note.

Nair expects the deficit to reduce in the industry over the next four-five quarters while continued discounts from developers will increase affordability.

On a year-to-date basis, the BSE Realty index is up nearly 25 percent to 1,578 as of March 21 compared with 1,263 on December 30 last year.

Shares of Delta Corp have advanced the most at 53.70 percent this calendar year, followed by Unitech (up 44 per cent), DLF (up 33 per cent), HDIL (up 30 per cent) and Sobha (up 29 per cent).

Other components of the BSE Realty index advanced 15-28 percent during this period.

In a chat with ETNow, Info Edge CFO Chintan Thakkar said: “In terms of consumer interest in real estate, it looks like it is coming back to normal level.”

Kotak Institutional Equities in a research note said it remains positive on the medium-term prospects of the sector due to improving affordability. “The price-to-income ratio for Bangalore has already improved to 4.8 times in FY2016 and is likely to improve further to 4.2 times in FY2018E. This ratio ranged 5-6 times during FY2010-15.”

Shankara Building Products (SBP) is a South India-focused building materials retailer with the limited product offering. The company derived around 40 per cent of its FY2016 sales through the retail channel, with the remaining being through the B2B route.

In 2006, SBP forayed into the retail space by offering fabrication and construction material such as structural steel, TMT bars, hollow blocks, pipes and tubes and roofing solutions. In 2016, the company started offering cement, tiles, sanitary ware, kitchen sinks and lighting products.

However, brokerage IndiaNivesh Securities says the slowdown continues in the real estate market. “Continued slowdown in the real estate market, delays/withdrawal of government subsidies (rolled-out solar and irrigation products for tier II and III cities in 2016) could impact SBP’s growth prospects,” the brokerage said in a research note.


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