Kalpataru IPO opens: Planning to apply? Check key risk factors from RHP

Real estate developer Kalpataru's issue opened today, and the overall issue was 5% subscribed till noon on Tuesday. The issue comprises 4,11,30,005 shares in a price band of ₹387-414 per equity share. The aggregate size of the offer is around ₹1591.73 crore to ₹1702.78 crore based on the lower and upper price bands, respectively.

The capital raised is intended to be used for debt repayment and corporate general purposes.

On Monday, the company raised ₹708 crore from nine anchor investors, including GIC, Bain Capital, SBI Mutual Fund (MF), 360 ONE Group, Aditya Birla Sun Life Insurance, ICICI Prudential MF, SBI General Insurance, Ayushmat Ltd, and Taurus MF.

Mumbai-based Kalpataru develops residential, commercial, retail and integrated township projects. It is also engaged in the redevelopment of societies.

Here are some key risks highlighted in the RHP

Geographically concentrated

As of December 31, 2024, March 31, 2024, March 31, 2023 and March 31, 2022, 94.84%, 94.93%, 94.93% and 95.00% of its real estate development projects were located in and around the Mumbai Metropolitan Region (MMR) and Pune, which may perform differently from, and may be subject to market conditions and regulatory developments that are different from, real estate markets in other parts of India or the world.

It cannot assure that the demand for its projects in and around the MMR and Pune will grow, or will not decrease in the future. Its business, financial condition and results of operations have been, and will continue to be, largely dependent on the performance of, and the prevailing conditions affecting, the real estate market in and around the MMR and Pune.

Exposed to the risks of land acquisition due to limited supply of land: The supply of land in the MMR and Pune is limited and highly competitive. The geographical constraints and high population density limit available land for new developments and redevelopment of old buildings is complex and time-consuming due to legal and regulatory hurdles. Further, in some urban areas, the market may become saturated with too many residential projects, leading to intense competition and price wars; and competition from emerging markets and new developers can impact established players.

Business is capital-intensive and requires significant expenditure

The company’s business is capital-intensive and requires significant expenditure for land acquisition and project development. Its level of debt and the limitations imposed by its current or future loan arrangements could have adverse consequences, including, but not limited to, its ability to obtain additional financing for working capital, capital expenditure, land acquisition or general corporate purposes may be impaired; fluctuations in market interest rates may adversely affect the cost of its borrowings; its ability to satisfy its obligations under its financing agreements may be limited.

Operations are labour-intensive

The company’s operations are labour-intensive, making it susceptible to strikes, work stoppages, increased wage demands or high attrition. These disruptions could affect its ability to maintain regular operations at its project sites and could lead to higher labour costs. Further, its business may also be adversely affected by high attrition. During periods of shortages in the supply of labour, it may not be able to complete projects according to its previously determined time frames, at its previously estimated project costs, or at all, which may adversely affect its business, results of operations and financial condition