Analysts say DLF IPO overpriced
"The premium in the grey market is just Rs 25 above the issue price," said a research analyst.
By Saba Ashraf, INDIATIMES NEWS NETWORK |
MUMBAI: The DLF initial public offer opens Monday after almost a year's wait. The size and hype surrounding the issue has built lot of expectations among investors. But reports of a slowdown in India's property market have many worried. Investment banks are said to be pushing the IPO by paying unprecedented cash incentives.
The Gurgaon-based real estate giant is entering the market with a public issue of 17.5 crore equity shares of Rs 2 each through 100% book building process. The price band has been fixed at Rs 500-550 per share. The floor price is 250 times the face value and the cap price 275 times. The IPO closes Thursday.
The KP Singh-owned company has been into construction of residential, commercial and retail. It has now added construction of hotels, infrastructure and special economic zones to the list. The company has a land bank of 10,255 acres, the largest among domestic realty players.
"The present land bank is sufficient for DLF's planned development projects over the next 10 years. The land has been amassed by the company over the years, resulting in a reasonably average acquisition cost of Rs 235 per square feet. In addition, the company's projects are located very strategically," said a Religare Securities report. The brokerage recommends subscribing to the IPO.
However, First Global finds the DLF issue steeply priced. "It is quite interesting that for the period FY07 (2006-07), DLF recognised an income of Rs 22.1 billion and profit before tax of Rs15.7 billion from the sale of certain commercial properties to DLF Assets Pvt. Ltd., a company wholly owned by the promoters. This sale represented 55% of the company's income and 61% of its PBT for the period FY07. The balance due in respect of sales to DLF Assets is Rs 8.5 billion as of May 25," says its research report.
"The DLF IPO is definitely priced higher. The premium in the grey market is just Rs 25 above the issue price, so that gives the flavour of the demand for the issue," said a research analyst with a local brokerage.
However, the institutional order book is reported to have already been fully covered, with several orders of $200-$500 million and strong interest from domestic fund managers.
"Most of the retail investors who would subscribe for the IPO would want to sell it on the listing day itself. But there is no guarantee that the issue will list higher, although there is no doubt that this is one of the best companies in the real estate field and will prove to be a good investment for a long run," the analyst added.
The IPO also comes at a time when most analysts expect a correction of about 40% in property prices, after a surge in building activity doubled land prices in major cities in India in the last two years.
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"Small real estate companies will have to fear this correction, if and when it comes. A big company like DLF will not be affected much, especially because it is now also into other divisions like hotels, hospitals and SEZs," said a research analyst with Religare Securities.
Girish Bhutra of Anand Rathi believes DLF will be a good investment with 6-9 months timeframe. But he too agrees that most investors would want to get a refund from the DLF investment to put in the next big IPO -- ICICI Bank, so they would want to sell on the listing day.
"The market is abuzz with the news that the ICICI Bank IPO may open on June 21-22, which might clash with DLF's listing date. So people might put only a part of their money in DLF, leaving the rest to invest in ICICI Bank," he said.
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