Financial turnaround crucial for Signature Global after listing

ET Intelligence Group: Haryana-based real estate company Signature Global (India) plans to raise up to ₹730 crore through an initial public offering. The IPO comprises an issue of fresh shares of ₹603 crore and a sale of shares worth ₹127 crore by existing shareholders.

Of the proceeds from the sale of fresh shares, ₹264 crore will be used to reduce debt and ₹168 crore will be invested in subsidiaries to reduce their debt, the company has said. The promoter group's stake will fall to 69.2% after the IPO from 78.4%. The company has been making losses for the past three fiscal years and the data is available in the prospectus. Operating cash flow was negative (cash outflow) in FY23 due to higher inventory and rising trade receivables.

This resulted in an increase in debt. Given these factors, investors need to wait and see how well the company takes advantage of the housing demand in the Delhi-National Capital Region to turn around operations.


Business
The company, which started operations in 2014, sells residential properties in the affordable and middle-income segments. As of March 31, 2023, it sold 27,965 residential and commercial units within the NCR. The average selling price was Rs36 lakh per residential unit. It has a market share of 19% in the affordable and lower-mid housing segments in the NCR.

Its ongoing projects cover 1.4 million square feet, which include 11,427 residential units and 932 commercial units. A significant portion of the company's ongoing and upcoming projects is concentrated in Gurgaon and Sohna in Haryana. In its forthcoming projects, it has a saleable area of 21.3 million square feet. Given the emergence of Gurgaon and its adjacent locations as a new business hub, the company stands to benefit from stable demand from increasing salaried individuals in and around these locations. As of March 31, 2023, 44% of the buyers of the company's residential units in Gurgaon opted for housing finance.

Financials
The company's income jumped to ₹1,585 crore in FY23 from ₹154.7 crore in FY21. It has total non-current liabilities of ₹1,326.3 crore and current liabilities of ₹4,622.6 crore. In the previous year, the non-current and current liabilities were ₹903.7 crore and ₹3,873.5 crore, respectively.

Valuation
Since the company has been making losses for the past three fiscal years, it has negative earnings per share. In the listed space, there are bigger and well-established real estate companies with better financials.