DB Realty

DB Realty

DB Realty

DB Realty

DB Realty

DB Realty

DB Realty fixes IPO price at Rs 468 per share

The IPO was subscribed 2.95 times

Real estate developer DB Realty has fixed the issue price of its initial pubic offer (IPO) at Rs 468 per share, at the lower end of its price band. Mumbai-based realty firm's Rs 1,500 crore initial pubic offer (IPO) that closed on 2 February 2010, was subscribed 2.95 times. The IPO remained open for bidding between 29 January 2010 and 2 February 2010. The price band of the IPO was set at Rs 468-486 per share.

Category wise, the qualified institutional buyers portion was subscribed 4.46 times and non institutional investors by 4.24 times. However, the retail category remained undersubscribed. Retail individual investors put in bids for 35.17 lakh shares as against 96.15 lakh shares reserved for them.

The Mumbai-based company had already received bids for Rs 270 crore towards the anchor investor portion of the IPO. The anchor investors to whom equity shares have been allocated pursuant to the offer include Janus, India Capital Fund, Prudential ICICI Life Insurance, Reliance Capital and India Equity Growth Fund.

The company plans to use the funds to build more homes and offices mainly in western India and to repay debt.

D B Realty focuses on residential, commercial, retail and other projects, such as mass housing and cluster redevelopment in and around Mumbai.

As per consolidated result, the company reported a net profit of Rs 145.79 crore on sales of Rs 464.43 crore in the year ended March 2009.

D B Realty IPO ends with 2.95 times subscription

Gets bids for 7.82 crore shares as compared with 2.64 crore shares on offer

Realty firm D B Realty's initial public offering (IPO) was subscribed 2.95 times and got bids for 7.82 crore shares, NSE data showed. The IPO remained open for bidding between 29 January 2010 and 2 February 2010. The price band or the IPO was set at Rs 468-486 per share.

Category wise, the qualified institutional buyers portion was subscribed 4.46 times and non institutional investors by 4.24 times. However retail category remain undersubscribed. Retail individual investors put in bids for 35.17 lakh shares as against 96.15 lakh shares reserved for them.

The Mumbai-based company had already received bids for Rs 270 crore towards the anchor investor portion of the IPO. The anchor investors to whom equity shares have been allocated pursuant to the offer include Janus, India Capital Fund, Prudential ICICI Life Insurance, Reliance Capital and India Equity Growth Fund.

The company plans to use the funds to build more homes and offices mainly in western India and to repay debt.

D B Realty focuses on residential, commercial, retail and other projects, such as mass housing and cluster redevelopment in and around Mumbai.

DB Realty IPO

DB Realty IPO

DB Realty IPO Review

Bitter reality

DB group has 112 companies and 3 partnership firms in similar as well as diverse fields with many related party transactions

DB Realty (DBRL), promoted by Vinod K Goenka and Shahid U Balwa, is engaged in real estate development in and around Mumbai and Pune. The company, incorporated on January 8, 2007, is currently focused on both residential as well as commercial (including retail) realty projects. In addition, the company is also involved in mass housing projects as well as cluster redevelopment projects in Mumbai.

The company has land reserve of 30.72 million square feet (sq ft), which on development will have a saleable area of 61.02 million square feet as of December 2009. It has commenced work for eleven projects (ongoing projects) aggregating to 19.51 million sq ft of saleable area. In addition, the company has firmed up plans for eight projects (forthcoming projects) with 19.28 million sq ft of saleable area and another six projects for which the company has acquired land but has not taken any initiative yet for obtaining approval aggregating to a saleable area of 22.24 million sq ft. Of the total 61.02 million sq ft of aggregate saleable area, about 29.29% is accounted for by mass housing and cluster redevelopment. In fact, the share of mass housing and cluster redevelopment projects is as high as 56.05% (or 10.94 million sq ft) in the ongoing projects.

From the development of mass housing projects for the Mumbai local authority, DBRL generates transferable development rights (TDRs), which are rights to develop additional built-up area in parts of Mumbai, generally north of the relevant development, and can be utilized in its own projects or other developers' projects in Mumbai. Currently, the company's ongoing project is expected to generate TDRs of up to 10.94 million sq ft. Similarly, the forthcoming and upcoming projects of the company are expected to generate TDRs of up to 6.21 and 0.73 million sq ft, respectively. So the aggregate TDRs generated from ongoing, forthcoming and upcoming projects amount to approximately 17.88 million sq ft. Likewise, the cluster redevelopment of old and dilapidated structures in Mumbai grants the company additional floor space index. Depending on market/commercial conditions, the company either sells TDRs or uses it for own development projects. Revenue from sale of TDRs constituted 76% of total revenue in FY 2009, but plunged to a mere 3.4% in H1 of FY2010.

The proceeds from the initial public offer of Rs 1500 crore will be used to a) meet construction and development of Orchid Ozone (residential cum commercial project), Ascot Centre II (commercial project), and Orchid Corporate Park (commercial project) in Mumbai and Orchid Centre (residential) in Pune, amounting to Rs 1044.66 crore; b) pre-pay the loan of Rs 800 crore taken from IDFC; and c) for meeting expenses for general corporate purposes.

Strengths

The company is focused on the Mumbai market and most of its projects are in and around Mumbai city. Of the total saleable area of 61.05 million sq ft, considering its ongoing, forthcoming and upcoming projects, about 85.5% (or 52.15 million sq ft) is in and around Mumbai. Mumbai market is one of the micro markets to have quickly bounced back from the recent (mid 2008) realty slump, given the consistent short supply of good quality residential stocks. Similarly, there is always a strong demand for commercial/retail space in Mumbai City if it is rightly located and rightly priced, given the pre-eminence of the city as commercial capital of the country.

Redevelopment schemes come with challenges in the form of majority consent (70% of project residents) as well as temporary accommodation. At the same time, redevelopment schemes offer opportunity to develop projects on such land at a lower cost in prime locations.

Ongoing projects of the company are expected to generate TDRs of up to 10.94 million sq ft, providing enough liquidity as the prices of TDR in the Mumbai market are quoting at around 2500/ sq ft and are looking firm.

Weaknesses

The company's operating history is very short, having incorporated in January 2007. The company does not have a record of completion of a project and delivery. It has only projects under construction. However, its promoters have strong experience in the real estate industry, having collectively developed approximately 15.90 million sq ft of real estate spanning across verticals of residential, commercial, retail and hospitality. Though the company has clocked revenue of Rs 434.43 crore for FY 2009, its operating cash flow is negative for that fiscal. This was primarily because of the continuing land development and acquisition expenses, unmatched by revenue streams.

Both the commercial projects among the ongoing projects are to be funded through the IPO proceeds. These commercial projects are likely to be completed by end of CY 2012. Since the commercial projects involve upfront cash outgo towards land and construction, revenues are expected only when the project is leased or sold out, which will happen only at advanced stage of completion. With two long years for completion, there will not be any cash inflow from commercial realty segment.

DB group has 112 companies and 3 partnership firms, with many related party transactions. The company, as of 30 September 2009, had given corporate guarantees for certain debt facilities availed by its related entities, aggregating to nearly Rs 2518.89 crore. This is in excess of the net-worth of the company at Rs 1411.55 crore end September 2009. Out of the total corporate guarantees provided, Rs 1769.26 crore (or 70% of guarantees) has been provided to entities engaged in businesses other than real estate such as hospitality and telecom. Moreover, the company has also made an investment of Rs 705.15 crore in unlisted entities related to it. In addition, the promoters have provided personal guarantees aggregating to approximately Rs 4328.77 crore in connection with certain debt facilities availed by such entities.

DBRL has extended interest-free loans to various entities related to the promoters, amounting to more than Rs 553.56 crore end September 2009. Further, it has not signed written agreements to document the terms and conditions of such loans. Moreover, some of these entities are either incurring losses or have negative net-worth.

Valuation

Incorporated in January 2007, the company has started clocking revenue from FY 2009 from sale of TDR and booking revenue from a couple of projects under construction by way of percentage completion method. Consolidated sales for FY 2009 stood at Rs 464.43 crore and net profit at Rs 145.79 crore. The EPS for FY 2009 stands at Rs 5.8 and Rs 5.9 on post-issue likely equity on the offer price band of Rs 468 at the lower level and Rs 486 at the upper level. The P/E works out to 80.7-82.4 times the offer price band. On the other hand, HDIL quotes at 13.6 times its FY 2009 consolidated earnings.

The enterprise value per million sq ft on the saleable area under construction and forthcoming/ pipeline is Rs 312.94 crore. That of HDIL is about is Rs 345.84 crore. HDIL has a land reserve of 175 million sq ft in the Mumbai metropolitan region compared to 30.72 million sq ft of DBRL.

DB Realty IPO Analysis

Investors can avoid the initial public offer of the Mumbai-based real-estate developer, DB Realty, for now. Presence in the Mumbai market, which is perennially in short supply of usable land, besides the company's participation in lucrative Transferable Development Right (TDR) projects, no doubt provide scope for ramping up earnings.

However, lack of an operational track record and a high asking price act as dampeners to this offer. The company's annualised earnings for FY-10, on a post issue equity base, works out to about Rs 5. At the offer price of Rs 468-486, the price earnings multiple is way above larger peers such as Ackruti City, HDIL and Orbit Corporation.

If the company is able to complete its ongoing projects for the next couple of years and generate TDRs from some of these projects, the offer price (at the higher end) would work out to about 15 times its expected consolidated per share earnings for FY-12.

Investors may bide their time and consider picking the stock after the company demonstrates its execution capabilities. Paying a marginal premium, then, may still be worth it for a Mumbai play.

The company and offer

DB Realty develops residential, commercial and retail properties besides undertaking mass housing and cluster redevelopment projects, in and around Mumbai. The last-mentioned category provides alternative land to developers; called TDRs, such land can either be developed or sold as such to third-parties.

The company plans to raise Rs 1500 crore through this offer primarily for construction and development of projects. At the offer price, the company's full market-cap would be about Rs 11,000 crore.

Quick ramp-up

DB Realty is now developing 19.5 million sq. ft of projects. Apart from ongoing projects, 19.3 million sq. ft of projects are in the pipeline and another 22.2 million sq. ft of forthcoming projects for which the company is yet to seek approvals for development.

Though the promoters have a background in real estate, DB Realty, as a company, is yet to make a mark in the property development business and does not have any completed projects to its credit since its inception in 2007.

While it incurred losses in the first two years, it turned in profits of Rs 146 crore (sales Rs 464 crore) by FY-09. However, close to half the revenues in FY-09 and the first half of FY-10 came from sale of TDRs, while the rest from partly booking revenues on ongoing projects.

While a quick ramp up by a company at a nascent stage of operation may appear impressive, it is not unusual for Mumbai realty players to quickly convert the lucrative TDRs in to cash.

Given its less-established operational background, the above project pipeline would warrant a close look on the execution and marketing front.

From the 11 ongoing projects of 19.5 million sq. ft, the company would generate TDRs of 10.9 million sq.ft. from mass housing projects. TDRs on forthcoming projects are negligible. While the market for TDRs has traditionally been lucrative, this market too nose-dived on changed regulations in September 2008 (which qualified more buildings for redevelopment), which ensured higher supply of TDRs.

This stream of revenue could, therefore, witness volatility, the reason why stocks of TDR-focussed players such as HDIL trade at a discount to peers such as DLF and Unitech.

Of the 11 ongoing projects with saleable area of 19.5 million sq. ft, only 50 per cent (coming from 3 projects) would be completed by FY-12. Ramp-up in revenues on timely sale of residential projects, could nevertheless be significant with about Rs 2000 crore of estimated revenues accruing over the next two years.

The high operating profit margins of over 50 per cent in FY-09 could, however, taper down to more normal 30-35 per cent, similar to peers, as the company's generation of TDRs decline.

Related transactions

Some of DB Realty's related party transactions also add other grey areas to the IPO. The company, for instance, has over Rs 200 crore of interest-free loans and advances granted to group and associate companies, including the group's hospitality ventures.

This amount was around Rs 400 crore as of March 2009, as much as 50 per cent of the company's net worth then.

Similarly, significant corporate guarantees for credit facilities extended to other companies under the same managements and in unrelated businesses such as telecom are risks for a sector that is working-capital intensive and in the early stages of growth.

The offer is open from January 29 to February 02.

via BL

DB Realty sets Rs 468-486 per share price band for IPO

The public issue to open for subscription on 29 January 2010

Mumbai-based realty firm DB Realty is entering capital market with an initial public offering (IPO) of Rs 1,500 crore on 29 January, 2010.

The price band has been fixed at Rs 468-486 per share. The issue will close for subscription on 2 February 2010.

The issue proceeds will be used for its ongoing projects and pre-paying the loan taken from IDFC.

As on 31 August 2009, it has 10 ongoing projects, aggregating approximately 18.61 million square feet of saleable area, 9 forthcoming projects, aggregating approximately 20.17 million square feet of saleable area and 6 upcoming projects, aggregating approximately 22.11 million square feet of saleable area.