DLF debut gains seen limited at 7-12 pct

Shares in real estate firm DLF Ltd., which raised $2.25 billion in India's biggest IPO, are expected to rise by up to 12 percent on their debut on Thursday, with the gains limited by concerns over falling property prices.

Analysts said a limited floating stock should help the company shrug off a sluggish near-term outlook for developers, amid high interest rates and property prices that have eased about 10 percent in the last four months.

DLF, which received subscriptions for about three times the shares on offer, could open at 560-590 rupees ($13.8-$14.6), analysts said, compared with an IPO priced at 525 rupees, near the middle of an indicated 500-550 rupee band.

Bangalore-based Sobha Developers Ltd. soared 75 percent on its debut in December, while Akruti Nirman rose by more than a third on its first trading day in February.

"Ideally, the stock should begin weak, but given the restricted supply scene, the shares can jump on the first day," said V. Suresh Babu, director and head of securities business at Spark Capital.

DLF last month sold 10.27 percent of the company, or 175 million shares, in an offering heavily bid by large funds, but which just managed full subscription for the 52.2 million shares reserved for small retail investors.

To sweeten the offering, retail investors were given an option to pay part of the full price, with the remainder in one or more calls. A banker associated with the offering said the part-paid shares would not be listed on Thursday.

DLF, India's most valuable developer at $22 billion, has strong long-term potential as demand for office space, shopping malls and apartment blocks will only rise in the coming years in India's fast-growth economy, Asia's third biggest, analysts said.

Rival Unitech Ltd. is valued at $11 billion.

"There's a concern that real estate prices could come down, but I'm convinced about the long-term potential given DLF's land bank and expansion potential," said Manish Balwani, analyst at Emkay Share and Stock Brokers.

Analysts are concerned about the near-term outlook for DLF, whose IPO was sold with some unprecedented marketing commissions by bankers Kotak Mahindra and DSP Merrill Lynch. It had abandoned an IPO last year after a market slide.

"We believe the stock is currently overvalued and initiate coverage with a 'sector underperformer' rating and a price target of 404 rupees," Enam Securities wrote in a report.

Spark's Babu added: "The sector itself does not have much to offer investors at this point of time. If one wants to play for 4-5 years, then DLF could be a choice."

Other bankers to the issue were Lehman Brothers, UBS, ICICI Securities, Citigroup, Deutsche Bank and SBI Capital Markets.