Godrej Properties is entering the capital market on 9th December, 09 with a public issue of 94.30 lakh equity shares of Rs. 10 each, in the band of Rs. 490 to Rs. 530 per share. This will result in 13.50% equity dilution, with market capitalization expected to be at Rs. 3,700 crores, at upper price band of Rs. 530 per share.
The basic model of the company is to develop the properties in joint development with the land owners, with over 75 per cent of the saleable area under this model. Hence, this result’s in lower land bank, less amount getting blocked in land purchase and focussing entirely on development of the land. For development of the land, builders and developers, generally raise construction finance or working capital requirements by selling part of the property under development. So, under the given circumstances, there is very low requirement of funds for the company and hence, such a stiff market capitalisation of the company is not justified at all.
Now coming on the total saleable area, it has 50.21 million sq. feet, of which 27.38 million sq. ft., being 54% is in Ahmedabad, with just 2.26 million sq. ft. in Mumbai. Not very significant completion of the projects is likely over next 2 years, which may keep the financials of the company, depressed and low. The company has recently entered (on 08-10-09) into a MoU with group company, Godrej & Boyce Mfg. Co. Ltd., for acquiring lease of 99 years, for 36.50 acres of land. This project may not take off for next two years and is in the eastern suburb of Mumbai, where realizations and margins are low. Also, this is seen as a measure to show a boost in saleable area, which may not really impress the prospective investors and justify the stiff offer price.
As stated earlier, against the expected market capitalization of the company at Rs.3,700 crores, there are many comparable peers available at a much cheaper valuations, with good presence in Mumbai, Pune, Banglore and NCR region. For example Parsvanath Developers has a market cap of Rs. 2,050 crores, Mahindra Life at Rs.1,400 crores,
Even the culture and quality of the company is same and comparable with other developers, in respect to loading over built up area, floor rise etc. So where is any extra feature, which needs to get valued higher or deserves disproportionate valuation or premium tag?
Issue is steeply priced and much better plays are available in the secondary market and our advice is to give a skip to the issue.