Nitesh Estates

Nitesh Estates is entering the capital market on 23^rd April, 2010 with a public issue of Rs.405 crores, in the price band of Rs.54 - Rs.56 per share. This would translate into an issue of about 7.36 crore shares. One good thing which is being noticed now is, fixing of price band with a narrow range of just about 4 per cent, against permissible 20 per cent.

The company seems to be facing a lot of liquidity pressure despite being a small and regional player, having presence in Bengaluru. The company, as on 20^th March, 2010 has 7 ongoing projects and 4 forthcoming projects, with a combined saleable area of 3.64 million sq.ft. However, break up of this, given on page 52 of RHP is showing some variations, in share of the company, which is inflated by about 50,000 sq.ft. in some projects like Nitesh Hyde Park and Nitesh Columbus Square. At 2 of its ongoing projects, Wimbledon Gardens, which constitutes 33.7% of its ongoing residential project and 100% of commercial project, work is suspended from FY09. The subsidiary of the company NIRPL has paid Rs.35.50 crores, for 5.80 lakh sq.ft. saleable area in Nitesh Mall and it still has to pay a further amount of Rs.49.50 crores, by 30^th June 2010. Even terms of shareholders agreements, entered with PE investors like AMIF I Ltd. and Brand Equity Treaties Ltd., is forcing the company to expedite its IPO. On top of it, the company had a total debt of Rs.194 crores, as on 31^st Dec. 2009, on a net worth of Rs.69 crores, resulting in a debt equity ratio of 2.8:1.

Apart form this, the company has no financial performance to speak about; infact it has no significant revenue from its core business of property development. In FY09, of its total income of Rs.88 crores, Rs.55 crores came from contracting work, while Rs.27 crores came from sale of development rights. And though the topline is in double digit, despite being a realty company, its PAT was paltry at just Rs.2.77 crores. Even during 9 months ending Dec.09, total income was just at Rs.67 crores, with net loss of Rs.1.33 crores.

Inspite of such a pathetic financial performance, the company has courage to issue bonus shares in the ratio of 9 shares for every 1 share held, due to which, paid up equity capital of the company, increased to Rs.69.78 crores. Strangely, this has placed net worth below its paid up equity at Rs.69.41 crores as at 31^st Dec. 2009, due to debit balance in the profit and loss account, of Rs.37 lakhs.

The company claims to have 3.64 million sq.ft., of which, 1 million sq.ft. is out of Bengaluru. As stated earlier, even of this 2.65 million sq.ft. in  Bengaluru, the clear title of the company is linked to so many obligations and performances.

Post IPO, paid up equity of the company will rise to Rs.145 crores. Even now, the company needs about Rs.725 crores, but has restricted its requirement to Rs.361 crores only, leaving uncovered liabilities of Rs.342 crores, in respect to Ritz Carlton Project. These factors may have forced the promoters of the company, even to agree for about 52% dilution to mobilise Rs.405 crores.

So by no way can the present saleable area can be valued out at about Rs.3,850 per sq.feet, which is being asked by the company, on its estimated EV of about Rs.1,400 crores. Infact, there is no track record of performance and even completion of all these projects may take over 5 years.

Much better plays are available in mid and large cap segment in reality sector, with strong presence in cities like Mumbai, Delhi, NCR and Bengaluru. Some of them are DB Realty, HDIL, Ansal, Brigade, Peninsula, etc. So, the proposed IPO is made to tide over present financial crisis and inspite of keeping band of Rs. 54-56 per share, it is still looking grossly over-priced, which should not have been more than Rs.30 per share.

Hence, a clear advice is to avoid it.