Volatile market, unattractive valuation let Puravankara down

Volatile market, unattractive valuation let Puravankara down
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First Published: Thu, Aug 09 2007. 12 40 AM IST
Updated: Thu, Aug 09 2007. 12 40 AM IST
New Delhi: The initial public offer (IPO) of Bangalore-based real estate firm, Puravankara Projects Ltd, to raise as much as Rs968 crore was subscribed 1.9 times on the last day, despite both the price being lowered and the offer date being extended, in a sign the market is jittery about real estate stocks.
The issue received 40.92 million bids for its 21.5 million equity shares on offer, according to the data available on the National Stock Exchange’s website as of 5pm. The portion of the issue reserved for Qualified Institutional Buyers such as banks and financial institutions was subscribed 2.69 times. However, the portion reserved for retail investors was undersubscribed.
Analysts say the weak response to Puravankara’s offer, partly because of a volatile stock market and partly due to an unattractive valuation, will also force other companies to look closely at their pricing.
“The issue with Puravankara is its valuation,” Manish Gunwani, vice-president Brics Securities, said. “They wanted to be too rich. The price band needs to be in line with the company’s Net Asset Value or earning. By higher pricing, it left nothing for the investors.”
According to a research note from Keynote Capitals Ltd, the pricing of the company’s initial public offering (Rs500-525) was 1.23-1.86 times the net present value range.
Poor response to its share sale, forced Puravankara to lower the band to Rs400-450 a share from Rs500-525, and extend the closing date of the issue to 8 August. The offer opened on 31 July. The company will now raise about Rs968 crore at the top end of the revised price band, instead of Rs1,130 crore planned earlier.
Puravankara builds homes in Bangalore, Kochi, Chennai, Coimbatore, Hyderabad, Mysore, Colombo and the United Arab Emirates. The company has land bank of 106.8 million sq. ft across cities. A majority of its completed projects as well as ongoing projects are in its home city of Bangalore.
Puravankara’s share sales did not find favour among investors primarily because of the volatile market conditions at the time of the issue, Mukesh Agarwal, manager at financial services firm HDFC Securities said. “A lot of liquidity was sucked out of the market by the big ticket IPOs which hit the market just before Puravankara’s share sale,” Agarwal said. DLF Ltd, raised Rs9,600 crore earlier this year.
When Puravankara’s IPO opened on 31 July, the market was jittery. On 1 August, the Bombay Stock Exchange’s benchmark index Sensex declined nearly 4%. “The IPO might have met with success if it had happened two months earlier.” Nitin A. Khandkar, Senior vice-president-research, Keynote Capitals said.
In the case of future real estate IPOs, valuations would be looked at very closely by the investors, analysts said. Pune-based Kolte-Patil Developers Ltd has sought regulatory approval for its initial offering.
IPOs are being priced at a huge premium to the price of listed companies, Agarwal said. “Listed companies are getting more interest from investors because of this. New IPOs will have to be priced in line with the price of the listed real estate companies,” he added.
Investor interest will depend entirely on the pricing, Gunwani said. “The pricing has to be reasonable.”
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First Published: Thu, Aug 09 2007. 12 40 AM IST