Puravankara Projects Ltd (PPL), the Bangalore-based realty firm, has been forced by poor response to its share sale to revise the price for the same downwards and extend the closing date of its initial public offering (IPO).
While PPL executives said this had been done in the light of volatile markets across Asia, one analyst said the fate of the IPO and the fall in the Bombay Stock Exchange’s Realty Index over the past week should not be seen as signs of a softening real estate market and loss of investor interest in real estate stocks.
By the end of Friday, the day the PPL issue was supposed to close, it was subscribed 0.36 times or 36%, according to information available on the website of the National Stock Exchange.
On Friday, PPL announced that it had reduced the price of shares on sale to Rs400-450, a 20% discount to the earlier price of Rs500-525, and extended the closing date of the IPO to 8 August.
This is the second time since January 2006 that a company has had to revise the price of its IPO and extend the process in an effort to ensure full subscription of shares. In May 2006, Deccan Aviation Ltd pared the price of its issue to Rs146-175 from Rs150-175 and extended it by three days. The issue was to close on 23 May 2006, but on the first three days of the IPO, the Sensex lost 909 points or 8.7%.
PPL has had similar luck. The Sensex has lost 4.16% since 24 July and the BSE Realty Index is down 9.03% since then. “We have repriced the issue based on feedback from investors across the globe, who said that in view of the volatile capital markets across Asia, it would be better to bring down the price band to Rs400-450,” said?PPL?director?V. Ravi Ramu.
The firm had no plans of scrapping the issue, added the firm’s deputy managing director Girish Puravankara . “We wanted to be sure our investors get a fair price,” he said.
Ramu said PPL spoke to several global investors before arriving at the decision: “They all liked everything about our company.” He claimed that the revised price had already received a good response from investors.
“It (PPL) was asking for a rich valuation. When the market leader itself was available at the same price (as the PPL stock), there was no institutional interest in the stock,” said Shahina Mukadam, head of research at IDBI Capital Markets Services Ltd. At Rs500, the lower end of its earlier price,?the?PPL scrip would have been priced at 57-64 times trailing (2006-07) earnings.
Mukadam said that “there is (still) a lot of interest in realty stocks”. “There is a demand for even mid-cap stocks such as Orbit Corp. Ltd, Parsvanath Developers Ltd and BSEL Infrastructure Reality Ltd .”
Not everyone shares that opinion. “A lot of US investors are wary of investing in Indian realty stocks. The Housing Development and Infrastructure Ltd and Omaxe Ltd issues went through because of the euphoria created by the DLF Ltd issue. PPL was asked to bring down its issue price by qualified institutional buyers (QIB),” says a real estate industry analyst who did not wish to be identified.
(Aswhin Ramarathinam in Mumbai and Archana Rai in Bangalore also contributed to this story.)