MUMBAI: There is no dearth of money supply for the mega initial public offering from Kushal Pal Singh’s realty firm DLF.
Real estate companies such as Parsvnath Developers and Sobha Developers which came out with their IPOs recently, managed to get subscriptions worth over Rs 65,000 crore each, if one were to consider their oversubscriptions of 61.84 and 114.31 times, respectively.
However, the price band within which the shares of DLF will be offered remains the key to its success.
If DLF wants to raise as much money as it wanted to when it filed its initial prospectus in May (around Rs 13,500 crore), then the issue price band would be much higher considering that there are less shares on offer this time.
The revised prospectus talks of 17.5 crore shares on offer compared with 20.2 crore shares in the prospectus filed in May.
Though Rs 700-825 is the price band being bandied about, analysts said this needs to be around 20-30% lower than the float is to generate enough appetite. One reason is that DLF has added to its land bank from the time it filed its prospectus in May.
The land reserves have gone up from around 5,234 acres in May to 10,255 acres.
“With prices of land having gone up substantially since May, this means that the company would have incurred huge costs in acquiring the land, and hence taken a hit on margins,” said Kirti Dalvi, research analyst at Angel Broking.
Probably why when valuations should have been lower (considering the lower margins), DLF wants to price its issue aggressively, to make good the costs incurred while acquiring the land.
But Ambar Maheshwari, director, investment advisory of DTZ India feels that although valuations are a concern, the market has perceived companies in the real estate sector as ones with high growth potential.
“The market cap of the recently listed real estate companies are far in excess of their underlying values,” he says.
Take Sobha Developers for example: According to Cushman & Wakefield, the value of its land bank at the end of July 2006, was between Rs 3,971.7 crore and Rs 4,389.8 crore. Its current market cap is around Rs 7,469 crore.
With eight merchant bankers supporting the IPO, the appetite, even if it isn’t large, could be enough to let the IPO go through.
Land bank doubles
Analysts say a pricing 20-30% below the Rs 700-825 is needed generate enough appetite.
One reason for this is that DLF has doubled its land bank from the time it filed its first prospectus in May - from 5,234 acres to 10,255 acres
Since land prices have risen a lot since May, DLF may have paid heavy acquisition cost, hurting margins
Source : DNA
Real estate companies such as Parsvnath Developers and Sobha Developers which came out with their IPOs recently, managed to get subscriptions worth over Rs 65,000 crore each, if one were to consider their oversubscriptions of 61.84 and 114.31 times, respectively.
However, the price band within which the shares of DLF will be offered remains the key to its success.
If DLF wants to raise as much money as it wanted to when it filed its initial prospectus in May (around Rs 13,500 crore), then the issue price band would be much higher considering that there are less shares on offer this time.
The revised prospectus talks of 17.5 crore shares on offer compared with 20.2 crore shares in the prospectus filed in May.
Though Rs 700-825 is the price band being bandied about, analysts said this needs to be around 20-30% lower than the float is to generate enough appetite. One reason is that DLF has added to its land bank from the time it filed its prospectus in May.
The land reserves have gone up from around 5,234 acres in May to 10,255 acres.
“With prices of land having gone up substantially since May, this means that the company would have incurred huge costs in acquiring the land, and hence taken a hit on margins,” said Kirti Dalvi, research analyst at Angel Broking.
Probably why when valuations should have been lower (considering the lower margins), DLF wants to price its issue aggressively, to make good the costs incurred while acquiring the land.
But Ambar Maheshwari, director, investment advisory of DTZ India feels that although valuations are a concern, the market has perceived companies in the real estate sector as ones with high growth potential.
“The market cap of the recently listed real estate companies are far in excess of their underlying values,” he says.
Take Sobha Developers for example: According to Cushman & Wakefield, the value of its land bank at the end of July 2006, was between Rs 3,971.7 crore and Rs 4,389.8 crore. Its current market cap is around Rs 7,469 crore.
With eight merchant bankers supporting the IPO, the appetite, even if it isn’t large, could be enough to let the IPO go through.
Land bank doubles
Analysts say a pricing 20-30% below the Rs 700-825 is needed generate enough appetite.
One reason for this is that DLF has doubled its land bank from the time it filed its first prospectus in May - from 5,234 acres to 10,255 acres
Since land prices have risen a lot since May, DLF may have paid heavy acquisition cost, hurting margins
Source : DNA