Objective of the issue
The fresh issue of 190 lakh equity shares is aimed at raising Rs 237 to Rs 275 crore (depending on the price band of Rs 125-145 per share) to fund the acquisition of development rights and the development and construction of the existing as well as forthcoming real estate projects. The remaining expenses including general expenses and general corporate expenses will be funded through internal accruals and debt.
After the issue, the total number of shares for the company will increase from 562.5 lakh shares to 752.5 lakh shares. This will bring down the promoters' stake to 74.8% of the diluted equity.
Company background
Incorporated in 1991, Kolte-Patil Developers Limited (KPDL) develops and constructs properties mainly in Pune city. The company has developed and constructed 25 projects spanning 4.0 million square feet (mn sq ft) as on September 30, 2007. Out of these 25 projects, 22 projects aggregating 3.6mn sq ft are in Pune city, whereas the remaining three projects spanning 0.4mn sq ft are in
and Memorandum of Understanding (MoU) from initial public offer (IPO) proceeds. The 32.9mn sq ft of acquired land would be used to develop 21.6mn sq ft saleable area over the next ten years.
Key positives
- Extensive land bank in and around Pune
o KPDL plans to develop almost all of its land bank in or around Pune city, the sixth largest metropolitan city in
- Joint venture with private equity fund to develop large projects
o KPDL has entered into a joint venture (JV) with ICICI Venture, a real estate private equity fund in
- Entering hospitality business
o KPDL plans to enter the hospitality business. In line with this, the company is planning to develop Hinjewadi Service Apartment to cater to the needs of IT/ITES professionals. This project is to be developed under the entity Green Olive, a 60:40 JV between KPDL and Arista Developers Private Limited.
- KPDL may expand to other local markets
Key concerns
- Large portion of land acquisition through sole development rights and MoU
- Outstanding litigation
o KPDL along with its promoter and directors is involved in various litigations aggregating around Rs50 crore. Any unfavourable court ruling against the company could affect its profitability.
- Execution risk
o KPDL has developed 4mn sq ft since its foundation in 1991. However, the company plans to develop 17.8mn sq ft over the next five years and 39.4mn sq ft over the next ten years. This implies execution of around 4.0mn sq ft on an annual basis.
- High concentration of land bank in Pune city
Valuation
Using net asset value (NAV) methodology, I have estimated one year forward NAV per share of Rs 194 implying a 33.9% discount at the upper band of Rs 145 per share.
Peer comparison
I have done peer group comparison for KPDL with other real estate players who have considerable presence and land bank in Pune city. At Rs 145 per share, KPDL is broadly in line with its peer's valuation.
- Kolte-Patil @Rs145 / 1 year forward NAV = 194 / Discount to NAV (%) = -33.9
- Kolte-Patil @Rs125 / forward NAV = 189 / Discount (%) = -33.9
- DS Kulkarni Developers / forward NAV = 459 / Discount (%) = -36.8
- Sobha Developers / forward NAV = 1001 / Discount (%) = -13.0
Issue details
- Issue opens: November 19, 2007
- Issue closes: November 22, 2007
- Issue size: 190 lakh-equity shares
- Reservation for employees: 1.9 lakh shares
- Fresh issue to public: 188 lakh shares
- Face value: Rs 10 each
- Price band: Rs 125-145
- Recommendation: SUBSCRIBE
