Background:
- Parsvnath Developers Ltd. (PDL) was incorporated in July 1990. Its core business is real estate development. PDL has operations in 41 cities of 14 states in India. As of October 15, 2006 it directly owned or held development rights for an estimated 108.64 million square feet of saleable area of land.
- Presently PDL have acquired land or development rights in connection with the development of 20 integrated townships, 27 commercial complexes including shopping malls, multiplexes, office space and a complete metro station and 25 residential projects. Also, the company intends to construct 14 hotels and 4 information technology parks. In addition, it has completed 17 projects including 9 housing projects and 8 commercial complexes. Further, PDL has obtained in principle approvals from GoI for the development of 9 SEZ projects.
- PDL’s scale of operation has expanded and total revenue has increased from Rs.27.3 crore in fiscal 2002 to Rs.6,53.77 crore in fiscal 2006, at a CAGR of 121.23%. During the same period, profit after tax has increased from Rs.3.3 crore to Rs.106.9 crore, at a CAGR of 138.67%.
- Post issue promoter’s shareholding would reduce from 100% to 81.7%, if Green shoe option is exercised, else it would be 80.33%
- To meet cost of development and construction of projects.
- General corporate purposes and expenses of issue.
- For the first quarter ending June 30, 2006 and fiscal 2006, 88.09% and 99.65% of revenue came from projects undertaken in non-Metro cities within India. PDL intends to continue to be a real estate developer with a pan-India presence. This strategy is also instrumental in providing it the early mover advantage in these cities and towns.
- PDL has a strong order book of Rs.1,428.5 crore. Around 65% of the projects are scheduled to be completed by FY2008.
- PDL derives tax benefits as per the provisions of Section-80 IC. The company can claim exemption on payment of income tax on residential projects approved before March 31, 2007.
- The company has strong financial record with income increasing @ 113% in FY2006 (Rs.653.76 crore) over FY2005 (Rs.306.85 crore). Net profits have also been increasing consistently. The same surged 62.93% in FY2006 (Rs.107 crore) over FY2005 (Rs.65.67 crore).
- The tenth five-year plan estimated a shortage of 22.4 million dwelling units. Thus, in the coming 15-20 years, 80-90 million housing units will have to be constructed with a majority catering to the low-income group. The investment required for constructing these and related infrastructure in these period would, be of the order of USD 666 billion to USD 888 billion at roughly USD 33 billion to USD 44 billion per year. This gives immense growth potential to PDL.
- PDL has negative cash flows from operations for FY2006 and first quarter ending June 30, 2006 of Rs.102.27 crore and Rs.48.28 crore respectively.
- PDL is highly dependent on timely supply of the requisite raw materials. The construction cost is range of 70% of total income. Prices of key raw material like cement are firming up which can have an adverse effect on company’s profit margins.
- The company is exposed to risk of fluctuation in market prices of land and constructed inventory. Real estate boom in the country has seen a surge in prices. Any correction in it would hamper the revenues of the company.
- Real Estate industry is highly fragmented and competitive. PDL faces competition from the unorganized sector of local constructors, who cater to the local demands at reduced costs.
- Total income increased from Rs.149.76 crore in the three month period ended June 30, 2005 to Rs.249.02 crore in the three month period ended June 30, 2006, which represents an increase of 66.27%.
- Net profit increased from Rs.16.12 crore in Q1 FY2006, to Rs.36.55 crore in the Q1 FY2007, which represents an increase of 126.75%. Net margins for the same period increased from 10.76% to 14.67% respectively.
- Post issue EPS is Rs.8.05 if the Green Shoe option is not exercised, else it would be 7.91. Post issue P/E will be in the range of 31-38 for a price band of Rs.250/- to Rs.300/-. Industry average P/E is 40.6.
- Net worth for FY2006 is Rs.201.15 crore.