B-Right Realestate BSE SME IPO review (Avoid)

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Review By Dilip Davda on June 27, 2022

•    BRL is in the realty business that has high competition and is a fragmented segment.
•    It has posted minuscule financial performance so far.
•    Based on its current earnings, the issue is exorbitantly priced. 
•    There is no harm in skipping this greedily priced IPO. 

ABOUT COMPANY:
B-Right Realestate Ltd. (BRL) is an integrated construction and real estate development company, focused primarily on the construction and development of residential and commercial projects, in and around Mumbai. It believes that it has established a successful track record in the real estate industry in Mumbai, by developing versatile projects through a focus on innovative architecture, strong project execution and quality construction. 

BRL has opted for a business model whereby it invests in its own subsidiary LLP named B-Right RealEstate Ventures LLP and this LLP makes investments in various SPV (Special Purpose Vehicle) which is been incorporated for a particular project. Each Real estate project has its own SPV and such SPV is closed upon completion of the project. This helps the company to keep a track of all the materials, human resources and all other miscellaneous expenses that occur from a particular project. Till today such a business model has been proven to be successful but it does not assure that the same would continue in future. 

The company also operates on Development Management contracts whereby it extends financial assistance for particular RealEstate projects. Its core competence lies in professionally managing the real estate value chain and attracting and retaining talent to maximize value creation. 

BRL focuses on developing projects on land held in stock in trade and by entering into joint development agreements & partnerships with parties for the development of projects. The Company intends to exploit the opportunities that are available in the Real Estate Sector and its operations will cover all aspects of real estate development, from the identification and acquisition of land, the planning, execution and marketing of our projects, maintenance and management of completed developments etc. As of the date of filing of this Prospectus, it has 6 employees on its payroll.

 ISSUE DETAILS/CAPITAL HISTORY: 
To part finance its needs for working capital (Rs. 33 cr.) and general corporate purposes (Rs. 10.76 cr.), BRL is coming out with a maiden IPO of 2899200 equity shares of Rs. 10 each at a fixed price of Rs. 153 per share to mobilize Rs. 44.36 cr. The issue opens for subscription on June 30, 2022, and will close on July 05, 2022. Minimum application is to be made for 800 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 28.06% of the post-IPO paid-up equity capital of the company. BRL is spending Rs. 0.60 cr. for this IPO process. 

This IPO is solely lead managed by Gretex Corporate Services Ltd. and Purva Sharegistry (India) Pvt. Ltd. is the registrar to the issue. Gretex Share Broking Pvt. Ltd. is the market maker for this IPO. 

After issuing initial equity at par, the company issued/converted further equity in the price range of Rs. 200 to Rs. 1800 per share between March 2008 and March 2021. It has also issued bonus shares in the ratio of 7 for 1 in April 2022. The average cost of acquisition of shares by the promoters is Rs. 6.25 per share. Thanks to hefty premium realized for conversion of loan that has resulted in higher NAV. 

Post-IPO BRL's current paid-up equity capital of Rs. 7.43 cr. will stand enhanced to Rs. 10.33 cr. Based on the IPO price, the company is looking for a market cap of Rs. 158.07 cr. 

FINANCIAL PERFORMANCE: 
On the financial performance front, for the last three fiscals, BRL has reported turnover/net profits of Rs. 2.45 cr. / Rs. 1.39 cr. (FY19), Rs. 1.47 cr. / Rs. 0.87 cr. (FY20) and Rs. 1.19 cr. / Rs. 0.58 cr. (FY20). For the first nine months of FY22 ended on December 31, 2021, it has earned a net profit of Rs. 0.72 cr. on a turnover of Rs. 1.16 cr. 

For the last three fiscals, the company has posted an average EPS of Rs. 12.92 and an average RoNW of 1.82%. This data appears to have been on the basis of the pre-bonus equity capital of the company. The issue is priced at a P/BV of 0.16 based on its NAV of Rs. 974.93 as of December 31, 2021, and at a P/BV of 1.39 based on its post-IPO NAV of Rs. 110.17 per share. 

If we annualize FY22 earnings and attribute it to post IPO fully diluted equity capital, then the asking price is at a P/E of 164.52 P/E. This shows as if they are the only players in this segment and asking for hefty premiums. The issue is exorbitantly priced expressing the greed of promoters. 

COMPARISON WITH LISTED PEERS:
As per the offer document, BRL has shown Samor Reality, Ratnabhumi Developers, Arihant Superstructures, Macrotech Developers as its listed peers. They are currently trading at a P/E of 240, 00, 12.68 and 42.93 (as of June 27, 2022). However, they are not truly comparable on an apple-to-apple basis. Compare with Macrotech, Arihant Super raises eyebrows.

DIVIDEND POLICY:
The company has not declared any dividend for the reported periods of the offer document. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

MERCHANT BANKER'S TRACK RECORD:
This is the 11th mandate from Gretex Corporate in the last four fiscals (including the ongoing one). Out of the last 8 listings, 2 opened at discount and the rest with premiums ranging from 0.05% to 21.90% on the day of listings. It has an average track record. 

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