DLF & Nitin Fire Protection

DLF IPO: On expected grounds

With DLF fixing its share price at Rs 525, the stage is set for the company to join the real-estate listed place. Institutional investors (such as overseas corporates, mutual funds, and insurance and banking companies) together bid for five times the shares earmarked for them.

DLF has stated that almost 90 per cent of the above came from global investors across Europe as also the US. This overwhelming interest of overseas players may be out of their perception of the Indian real-estate, in general, and DLF's business model, in particular.

For one, it is difficult for any global real-estate investor to invest across India, as most of the developers offer limited regional exposure. DLF, which also laid its foundation in the National Capital Region, has now spread its wings, by investing in land across 31 cities in India. For the overseas investors, this offers a single window to play the `Indian real-estate' theme with relatively low concentration.

Two, in the short to medium term, DLF's plans a number of retail and commercial projects. This fits well with the international model, wherein real-estate investors typically derive income mainly from the business of leasing. With the Securities and Exchange Board of India mooting the idea of real-estate funds, DLF, with its scale of operations and relatively superior disclosure of land and projects, may well be an ideal investment candidate for such funds to consider. These two factors may well be reasons for the high institutional interest in this IPO.

That the retail portion of the offer was not fully subscribed does not come as a surprise. Given the stiff pricing, short-term investors looking for listing gains probably perceived the offer as one that left very little money on the table.

What retail investors can expect on DLF's listing, however, is some direction on the valuation levels for large- and mid-size realty stocks, based on their business models. With IPOs of Omaxe, HDIL Puravankara Projects and IVR Prime set to hit the market, clarity on valuations may emerge sooner than it would have otherwise taken.

Nitin Fire Protection: Well-insulated

The stock of Nitin Fire Protection Industries (NFPIL) more than satisfied the street expectations with its strong listing at Rs 332.50 on the BSE, attracting a 75 per cent premium over its issue price of Rs 190. After more than doubling the investors' booty, the stock now trades at about 23 times its likely FY-08 earnings per share.

While valuations appear stiff at the current market price, investors' fancy for the stock may be underpinned by a completely different set of factors. While some part of the optimism could be linked to the company's high growth prospects, a chunk of it is likely to stem from investors' expectations of riding another growth story such as that of Everest Kanto Cylinders (EKC). EKC, a leading player in the CNG cylinder space, has returned more than six times after its listing in December 2005.