Arkade Developers IPO Analysis 2024: Should You Subscribe?

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The IPO (initial public offering) of real estate developer Arkade Developers Ltd (Arkade) commences on September 16 and concludes on September 19, 2024. The offering, carrying a Grey Market Premium (GMP) of 63%, attracted significant interest on its first day of bidding. However, investors need a clear understanding of both potential rewards and risks before subscribing. This IPO analysis provides a comprehensive review to help make an informed decision.

Arkade Developers IPO Details

  • Issue Details: Mainstream
  • Issue Size: Rs 410 crore
  • Price Range: Rs 121 – Rs 128
  • Lot size: 110 shares

Arkade Developers IPO Subscription Status

The IPO of Arkade Developers Ltd witnessed robust demand on its first day, with subscriptions reaching 6.27 times by 6 p.m. Non-institutional investors subscribed 8.40 times their allocation, while retail investors subscribed 8.68 times. Meanwhile, qualified institutional buyers subscribed just 0.25 times their reserved portion.

Overview of Arkade Developers

Arkade is a real estate development company focused on the development of high-quality residential projects in Mumbai, Maharashtra. It specializes in both new project developments and the redevelopment of existing properties.

Over the past 20 years, Arkade has successfully completed 28 projects, including 11 standalone projects, 9 joint developments, and 8 projects under proprietorship, collectively amounting to over 4.5 million square feet of development. During this time, the company has served over 4,000 customers.

Arkade Developers Key Strengths

  • Market Position: Arkade is a leading developer in the Mumbai Metropolitan Region (MMR), ranking among the top 10 in supply within specific micro-markets in Maharashtra.
  • Strong Financial Growth: Arkade has demonstrated significant growth, with its operational revenue and net profit achieving compounded annual growth rates (CAGRs) of 67% and 55%, respectively, from FY22 to FY24.
Arkade Developers Profit Growth
  • Solid Return Metrics: Arkade’s financial efficiency is highlighted by impressive return metrics, with a Return on Equity (RoE) of 46.90% and a Return on Capital Employed (RoCE) of 47.34% in FY24, outperforming its industry peers.
  • Robust Project Pipeline: As of June 30, 2024, Arkade has 6 ongoing projects with a developable area of 1.87 million square feet and 6 upcoming projects with 1.82 million square feet. These projects, strategically located in Mumbai’s prime western and eastern suburbs, are in various stages of development.

Arkade Developers Risk Factors

  • Regional Dependence: Arkade's operations are entirely based in the MMR region. Any developments negatively impacting the MMR real estate market could detrimentally affect the firm’s business, operational results, and financial standing.
  • Cash Flow Issues: In FY23 and FY22, Arkade experienced negative cash flows from operations, primarily due to an increase in inventories, other financial assets, and adjustments for interest income. Continued negative cash flows may jeopardize the firm’s operational efficiency and financial outcomes.
  • Legal Risks: Arkade is currently entangled in various legal disputes involving its directors, promoters, and subsidiaries. Adverse rulings in these legal matters could damage the company's reputation and financial stability.

Arkade Developers Valuation & Recommendation

The IPO is attractively priced with a price-to-earnings (P/E) ratio of 16x based on FY24 earnings. A positive grey market premium (GMP) also suggests a solid market debut on the bourses. Arkade has shown significant growth in FY24 following steady performances in FY22 and FY23, setting a positive trend for the future. With the capital influx post-IPO, the firm will be well-equipped to fuel its growth over the next 3-4 years.

Moreover, the company boasts a robust pipeline of projects, with approximately 3.7 million sq. ft. of developable area across ongoing and forthcoming projects. It operates with virtually no debt, having historically funded its activities primarily through promoter contributions and internal accruals rather than heavy leveraging.

Considering the appealing valuation, proven execution capabilities, strong financials, and the growth potential within the Mumbai Metropolitan Region real estate market, investors may consider subscribing to this IPO from a medium-to-long term perspective.

For a deep dive into other IPOs, explore: IPO Corner on Liquide

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