EMAAR MGF LAND
Emmar MGF Land is entering the capital market on 1st February 08, with a public issue of 10.26 crore equity shares of Rs.10 each with the revised price band of Rs.540 to Rs.630 per share.
The proposed issue is diluting about 10.40% and the expanded equity of Rs.985.93 crore would translate into a market capitalization of Rs.62,000 crores, at the upper band of Rs.630 per share. This is without considering any gain being accrued to the prospective investors and purely on primary market valuations.
The company seems to be only mobilizing land and had 13,024 acres of land as at 31-12-07, which would give 566 million sq. ft. of saleable area to the company. Of total land bank, 80% is agricultural land and not a single sq. ft. is in Mumbai, which is the remunerative real estate market, and dream of every realty company to own and develop property in this city. Of this, only 17.80 million sq. ft. is under development.
If we take a further break up of proposed development, residential plot is for 136.5 million sq. ft. while 318.80 million sq. ft. is for residence. This constitutes 80% of the total saleable area. Residential always have the lower realization for sale on ownership basis as well as for rental or lease.
While acquiring this land stock, debt of the company rose to Rs.5,288 crores as on 12-01-08, with net worth of Rs.4,839 crores, which includes preference share capital of Rs.923 crores.
FY 07 financial performance, (being its first year of operations), posted a net loss of Rs.47 crores. For 6 months ending 30-09-07, the topline of the company was at Rs.502 crores with PAT of Rs.129 crores. With this kind of performance, the promoters of the company, are dreaming to mobilize close to Rs.7,000 crores, by diluting close to 10%. Really dreaming big.
If we compare its valuations, with other realty companies, it is nowhere matching with them. The per sq. ft. cost of land works out to Rs.1,095 per sq. ft. for the company, on expected market capitalization of Rs.62,000 crores. Parsvanath Developers has a market capitalization of Rs.5,000 crores with 220 million sq. ft. of saleable area, translating into a value of Rs.225 per sq. ft. Apart from this, Parsvanath Developers, has about 55% area in A Class cities, and 55% of this is in NCR region. Promoter's stake is also quite high at 80% and company has presence in residential integrated township, shopping, commercial, hotels, SEZ and hospitality sector.
Parsvanath Developers with market capitalization of Rs.5,000 crores posted total income of Rs.488 crores and PAT of Rs.115 crores for quarter ending December 07. Omaxe with market capitalization of Rs.5,000 crores had posted a topline of Rs.576 crores with PAT of Rs.154 crores, for quarter ending December 07. Omaxe is developing 20 million sq. ft. in FY 08 and plans to develop 40 million sq. ft. in FY 09.
Unitech having market capitalization of Rs.61,000 crores is posting quarterly topline of over Rs.1,000 crores and bottomline of close to Rs.500 crores. DLF having market capitalization of close to Rs.1,40,000 crores had posted a topline of Rs.3,650 crores and PAT of Rs.2,145 crores, after paying tax of over Rs.320 crores, for December 07, quarter.
Inspite of losses in FY 07, and meager profit of Rs.132 crores in first half of FY 08, the company dared to capitalize Rs.760 crores, out of share premium, to issue bonus shares in the ratio of 7 shares for every 1 share held. This is inspite of the fact that more than 50% equity capital, (pre-bonus), were issued at par.
The company seems to be more building its brand image and visibility, based on the track record of Emmar, a Dubai based company. Even in Hyderabad, where the company is owning 510 acres of land, at its Boulder Hills project, has presently developed a 18 hole golf course on about 180 acres. Not a single sq. ft. of saleable area has been developed by company, as yet, on this project. So, who will come and play on this golf course ? Probably, golf course would help the company in marketing its realty project. In the vicinity of Boulder Hills project, Lanco is selling residential premises at Rs.4,000 to Rs.4,500 per sq. ft. while company dreams of realizing Rs.6,500 to Rs.7,000 per sq. ft.
The issue has no positives at all to attract any prospective investor, even at the revised price band in view of umpteen mid and large size realty companies being available in the secondary market. The financial performance, not likely to take off for FY 08 and FY 09 (part) would keep the share price depressed, as post listing, financial performance of the company would get compared with DLF and Unitech where company won't be able to stand.
Give a pass to the issue and go for existing established players showing growth coupled with better margins and diversified range on pan-India basis. Even revised band at the lower end of Rs.540 looks expensive.