Bangalore greens

Issue opens: July 31
Issue closes: August 3

Puravankara Projects scores better than its peers on growth and profitability.

The scramble for quality realty stocks on the bourses has been made evident by the response from institutional buyers and high networth individuals to the initial public offerings of DLF, HDIL and more so, Omaxe.

A similar trend was observed last year, when Sobha Developers and Parsvnath Developers hit the market and stunned investors with their listing gains largely led by the huge demand for real estate papers.

However, DLF and HDIL failed miserably to repeat the feat achieving phenomenal listing gains like Parsvnath. Following these lacklustre listings, IVR Prime too could not evoke as high interest as Omaxe. On the closing day of the issue, it was subscribed just over two times overall.

Now, it remains to be seen how the newer entrants fare – for instance, the Omaxe issue was priced at a significant discount to its net asset value (NAV), which leaves a strong possibility of an upside after listing.

Amidst this perplexed climate on the real estate counters, another south India based realtor, Puravankara Projects is out to mop up between Rs 1,073-1,127 crore from the public.

Inside the issue
Puravankara's initial public offering (IPO) comprises of about 21.5 million shares of the face value of Rs 5 each price in the band of Rs 500-525. The issue would constitute of 10.05 per cent of the fully diluted post-issue paid up capital of Puravankara.

Approximately Rs 350 crore will be utilised toward making payments for land acquisitions while Rs 420 crore will be used to retire debt. The company currently has nearly 94.6 million sq ft of saleable area, of which around 12.2 million sq ft is under construction.

"The ongoing projects are likely to be finished in a time-span of about 18-24 months, while the entire land reserve of over 102 million sq ft of developable area is likely to be exhausted over the coming 7-8 years," says Girish Puravankara, deputy managing director, Puravankara Projects.

High rise
Puravankara Projects has established itself as a high-end residential developer in the south-Indian geography, with projects across six cities in the south and Kolkata in the north.

Apart from this, it also has a project under construction in Colombo, Sri Lanka.

The company also has a 49 per cent stake in a joint venture with Singapore-based realtor Keppel Land, which is owned by Temasek, the Singapore government's investment arm.

This JV is presently constructing two residential projects in Bangalore and Kolkata totalling about 7.8 million sq ft. "We aim to leverage upon and learn from the best practices of Keppel through this joint venture," claims Ravi Puravankara, chairman and managing director.

In addition to this vast spread of operations, the company also has sales and marketing offices in the United Arab Emirates to tap into the demand from the non-resident Indian (NRI) buyers.

"Approximately 20 per cent of our revenues come from NRI buyers, of which about 60 per cent comes from the middle-east," says Ravi Puravankara.

On firm ground
Puravankara has managed to demonstrate impeccable consistency in its financial track record.

The company has grown its top line at a compounded annual rate of 76.1 per cent over FY04-FY07, while its operating and net profits have grown at a compounded annual rate of 76.4 and 104

Its operating profit margins have remained consistent at over 40 per cent over the past four fiscals, while it has been steadily expanding its net profit margins from 20 per cent in FY04 to a substantial 31 per cent in FY07.

"Because of our land acquisition strategy to buy land at strategic locations, not too far from the central business districts in suburban areas of tier-I and tier-II cities, as well as the contribution to the bottom line from the joint venture, we have been able to expand our net profit margins continuously," says Ravi Ramu, director, Puravankara Projects.

The company is now eyeing another parcel of land to add to its land reserves in Sriperumbudur in the near future.

Valuation Puravankara has developed 3.77 million sq ft of land since it started operations in 1986. Over the next eight years, the company plans to develop about 102 million sq ft of area.

This appears rather conservative considering for example, Parsvnath Developers which plans to develop over 150 million sq ft over the coming three years alone.

The company's land reserves and its partnership with Keppel Land speak for its capabilities. One concern however, is that over 73 per cent of its projects are concentrated in Bangalore alone.

Based on the price-earnings ratio (67-71 times estimated FY08 earnings), of course, the stock looks a tad expensive which is pretty much the case with most real estate stocks.

But going by its capabilities, and execution and profitability track record, the company could be a good addition to one long term portfolio.