Analyzing the IPO of Samor Reality Limited

  • Stock Market Analysis

Samor Reality Limited, a small-scale company, is slated to hit capital markets at the end of September. The company’s IPO will open on September 30 and close on October 5. It is a fixed price issue IPO that is priced at Rs 62 per share. Samor Reality intends to issue 1.3 million equity shares of Rs 10, each aggregating up to Rs 8.06 crore. The market lot size consists of 2,000 equity shares. A retail-individual investor can apply for up to one lot of 2,000 shares amounting to Rs 124,000. Samor Reality is promoted by Birjukumar Shah and and Jagrutiben Birjukumar Shah. Post issue, the promoters’ shareholding will reduce to 53.37% from 76.5% earlier. The IPO proceeds will be utilized for investment into promoters’ subsidiary M/s Samor & Motherland LLP and general corporate purposes. The shares will be listed on the BSE SME exchange.

Samor Reality’s Business Overview

Samor Reality Limited is an integrated construction and real estate development company focused mainly on constructing and developing residential and commercial projects in and around Ahmedabad, Gujarat. Incorporated in the year 2014, the company belongs to Ahmedabad-based Samor Group. Its projects are marketed under the brand name of “Samor,” such as Samor Heights. The company also trades in building and construction materials, specifically TMT Bars, HR Sheets of different sizes. For fiscal 2021, the company received its entire revenue from trading activity. Samor Reality has 60% holding in Samor & Motherland LLP. The latter conducts business as builders, contractors, designers, decorators, furniture, consultants, constructors, investor, and brokers of real estate and all types of buildings and structures.

Samor Reality’s Financial Performance

A quick look into the below-mentioned table below reveals that Samor Reality’s financial performance has been very uneven in the last three fiscal years. The company’s revenue dipped 87.3% year-on-year in FY 2020 to Rs 1.06 crore. However, in FY2021, the same jumped 814% to Rs 9.64 crore. The EBITDA too plunged in FY2020 and went negative. But it bounced back to Rs 0.14 crore in FY2021, rising 311.1% year-on-year. Profit after tax also turned negative in FY2020 but turned favorable to Rs 0.10 crore in FY2021. PAT margin reflects an uneven trend with 1.3% in FY2019, negative 8.3% in FY2020, and positive 1.1% in FY2021. What is most noteworthy is the statement of Samor Reality that its entire 100% revenue in FY2021 is from trading activities.
Investment Rationale

Samor Reality has so far completed one project titled ‘Samor Height.’ It was a residential cum commercial project. The project started on July 16, 2016, and was completed on January 4, 2018. The building comprises a total of 10 shops and 187 residential 1 BHK and 2 BHK flats. The upcoming project ‘The Gold Sky Villa’ is undertaken by its newly formed wholly-owned subsidiary Samor & Motherland LLP. The proposed built-up area is 51,510.86 square meters, with a total of 3 buildings to be constructed.

Investors should note here that the company mentioned that its projects are marketed under the brand name ‘Samor’ in its prospectus. However, the newly launched project by its subsidiary does not bear/prefix the brand name ‘Samor.’ It is an interesting fact to ponder upon. Samor Reality has launched its second construction project more than three years after the completion of the first project. Again the point is worth noting. Successful execution of real estate projects is susceptible to interest rate changes. The coming period will be an era of high interest rates. Secondly, while going through the draft prospectus, we noticed that Samor Realities owe Rs 0.37 crore to creditors other than Micro and Small & Medium Enterprises as of March 31, 2021. Considering the company’s scale of business operations, this is a considerable amount. Investors are advised to take a call after considering all the aspects.

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