What do experts, brokerages say about Oberoi Realty IPO?
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Mumbai-based Oberoi Realty's initial public offering of 395.62 lakh equity shares opened for subscription today.
The real estate developer is focused on premium developments and on residential projects and aims to raise Rs 1,000 crore through the IPO.
The IPO has received commitment of Rs 185.15 crore from investors as against allotment of 71,21,160 equity shares at Rs 260 a share, at higher end of price band of Rs 253-260 a share on Tuesday.
Morgan Stanley holds 10.76% stake in the company and currently it is a zero debt company.
Experts were mixed in their opinions while brokerage houses recommended subscribing the issue. Everyone agreed that the issue is highly priced. Investment Advisor, SP Tulsian feels that valuation of Oberoi Realty IPO is very expensive. However, Manish Bhatt of Prabhudas Lilladher has recommended subscribing the issue. "The issue looks good though it is slightly high priced," he said.
Brokerage houses like Edelweiss, Angel Broking and IIFL has advised subscribing the issue though the issue is fairly priced.
While explaining Tulsian said, "They have about 10 million sq ft ongoing projects, of which about 2 million sq ft has been sold by the company for close to about Rs 2,200 crore. So, they will be receiving huge amount from that because their Andheri East project of about 1.2-1.3 million sq ft is ready for handing over the possession in the month of December 2010, which the management has said in the RHP and confirmed that they are sticking to their delivery schedule. So, they will be having good cash flow coming. If I take total construction expenses on 8 million sq ft, as I said there are total 10 million sq ft, of ongoing projects of which you knock off this 1.5-2 million, you are left with 8 million sq ft. I don’t think that you need Rs 1,000 crore money, on which are scheduled to be completed by 2013-14."
"If I take valuation call of Rs 8,500 crore, which company will be having the market cap with a land bank of close to about 20 million sq ft. And when you compare this maybe with DB Realty or HDIL who have larger presence in Bombay, I don’t think that Rs 260 or maybe even the lower band deserves the kind of valuations. Because the DB Realty today is ruling at a market cap of close to Rs 10,000 crore, HDIL is ruling at a market cap of Rs 11,300 crore. I agree that they have certain debts in their books, but even the EV compared to Oberoi Realty is quite low, when you go with strict comparison."
CNBC-TV18’s Managing Editor Udayan Mukherjee says the business looks pretty okay because most of their land banks seem to be around Mumbai suburban area and the rates are very strong out there, demand is pretty good. “A lot of institutional guys who want a large chunk of a Mumbai player will probably be interested in Oberoi Realty. It might be slightly on the expensive side, but the business is quiet robust, so there should not be a major problem.”
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Experts give thumbs-up to Oberoi Realty IPO
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In an interview with CNBC-TV18’s Latha Venkatesh and Anuj Singhal, Bhaskar Chakraborthy, real estate analyst at IIFL and Param Desai, research analyst at Angel Broking, gave their views on whether one should subscribe on Oberoi Realty IPO.
Below is a verbatim transcript of the interview. Also watch the video.
Q: Would you rate a "Subscribe" on this? Do you think the prices are fair value?
Chakraborthy: We have recommended our investors to subscribe to the issue with hint that the issue is very fairly priced and the important thing here is that the company has only 20 million square feet of land bank, which can be monetised in just about five to six years. The NAV in this case is very front-ended compared to many other real estate companies in India, which have much larger land banks and hence backended NAVs.
Q: You also have a "Subscribe" on this issue and you are NAV for the company is at about Rs 295 a share. So you expect the company to post some listing gains on day one?
Desai: We have remained a “Subscribe” from a long term perspective. The company has a strong brand which ensures timely execution and quality infrastructure and this brand also helps them to achieve premium pricing vis-à-vis the other developers in the same vicinity and as Bhaskar said this NAV is quite front ended and our assumptions of the NAV is around Rs 10,000 per square feet selling assumption. So we do expect listing from 10% to 15%.
Q: There is a charge that the land bank is of not very high quality. It’s largely in the Mumbai suburbs and therefore perhaps whatever gains you can give the company in the next year or so is already in the price?
Desai: I do agree. The land bank is quite smaller as compared to other listed players and it would be a challenging task to the company to reinvest is the free cash flow and replenish its current land bank sustainable basis. But having said that they do have a land bank of 20 million square feet, which gives execution visibility around 6 to 7 years.
Q: The management has clarified today morning in an interview to us that they wouldn’t be buying land at very premium valuations. But would you have any kind of concerns because land prices have gone up quite significantly—anything that they buy right now would anyway be expensive?
Chakraborthy: I don’t. A case in point is the two textile mill lands that were auctioned in Worli recently. The company participated in both of them and they were among the lowest bidders. They sort of topped the sheet from the bottom which means that they will only buy piece of land at their price while they think the economics are right and that’s what they have done in the past also which is visible in the kind of profitability they have been reporting—the strong operating cash flows that they have.
They have been operating cash flow positive even in FY09, which was the toughest year for all realtors across the country. The management has been very judicious in the past and we don’t see that changing now with the fund raising.
Q: The Mumbai realty companies have not been able to do as well as the other realty companies on the secondary markets. Why would you want to pay a premium to an IPO like this compared to the listed stocks especially the Mumbai realty stocks?
Desai: As I said this company is a debt free company which is quite differentiating from other listed players. There is a strong brand name. They have been in the Mumbai markets since 1983. They have been executing the project on time. The infrastructure is of quality and they are getting a premium pricing vis-à-vis other developers in the vicinity. The IPO is also fairly priced—it’s 15% discount to our one year NAV.
Q: What would be your projections for FY11 on both the top line and the bottom line?
Chakraborthy: We think the company will be registering a 24% EPS CAGR over the next two years and it is reasonably predictable because lot of the inventory is already presold now if they go ahead with construction they will be able to collect those payments and that earnings are almost in the bag. So that s a very comfortable position to be with. That’s why it’s a very good hold for the medium-term.
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AS I SAID IN MY IPO ANALYSIS FIRST TIME WHEN SOMEONE ASKED ME AFTER PRICE BAND CAME OUT ON SUNDAY
SUBSCRIBE FOR LONG TERM SAY 6 MONTHS TO 1 YEAR
LISTING GAINS CAN BE NOT THAT EXCITING
SO GO FOR LONG TERM
YOU CAN ALSO ADD
INDIABULLS REAL ESTATE TARGET 250 6 MONTHS
I HAD ADVICED TO KK AND SHREEDHAR AT 175 ODD
SHREEDHAR HAS ENTERED AT 160 ODD
MY CLIENTS ENTERED AT 162 ODD
Regards
Setu
Zerodha (Trading & Demat Account)
RHP
IPO Guru (2500+ Posts, 2700+ Likes)
