'Do not Subscribe' to Prestige Estates IPO:Edelweiss

MUMBAI: Edelweiss has recommended investors to ‘Do not Subscribe’ to the initial public offering of Prestige Estates Projects.

The company has entered the capital market to raise Rs 1200 crore through an IPO in the Rs 172-183 per share price range, giving post-money valuation of Rs 57-60 bn. As per issue terms, 66-70 mn shares will be issued at the lower and upper band, resulting in dilution of 20-21%, respectively.

“Our NAV for Prestige stands at Rs 57.9 billion or Rs 174-176/share and the issue is available at 1% discount/4% premium to NAV at the lower/upper price bands, respectively. However, considering factors such as RoE of ~20% with a JDA model, high gearing level (2.6x as of June 2010), and presence of structured instruments/variable rate entities and minority stakes in many rental projects, we believe the issue price offers limited margin of safety. We, therefore, recommend ‘DO NOT SUBSCRIBE’ to the IPO,” the report said.

Prestige is established in Bengaluru and has developed ~34 msf of real estate projects. The company enjoys a strong brand in Bengaluru along with premium pricing for its projects. It has development rights over ~57 msf area across South India, of which Prestige’s share is ~39 msf which includes ~28 msf of saleable area and ~11 msf of leasable area with over 70% of its land bank in Bengaluru.

The issue closes Thursday.