New IPO - Emaar MGF Land (SUBSCRIBE)

Issue details:

• Issue opens: 01 February, 2008
• Issue closes: 06 February, 2008
• Issue size: 10.26 crore equity shares
• Face value: Rs 10 each
• Break-up of fresh issue to public:
• QIB's portion: 6.15 crore shares
• Retail portion: 3.08 crore shares
• Non-institutional portion: 1.02 crore shares
• Price band: Rs 540 – Rs 630

 

Objective of the issue

The issue of 10.26 crore equity shares is aimed at raising Rs 6, 256.8 crore to Rs 7,077.4 crore (depending on the price band of Rs 610-690 per share) to make part payment towards acquisition of land and land development rights, development and construction cost for its Palm Drive project and repayment of loans. Part of the proceeds would be utilized for meeting issue expenses and general corporate purposes. After the issue, the total number of shares for the company will increase from 88.34 crore shares to 98.59 crore shares, bringing down the stake of the promoters and the promoters group to 85.3% of the diluted equity.

 

Company background

Incorporated in 2005, Emaar MGF Land (Emaar MGF) is a joint venture between Emaar Properties PJSC of Dubai (Emaar) and MGF Development (MGF) of India. Emaar is the world's leading real estate company, which has operations in 16 countries and has developed approximately 45.0 million square feet (mn sq ft) across the business verticals. MGF has established itself as one of the key players in retail real estate development in northern India over the last ten years.

 

Key positives

• Parent company's advantage:

Emaar MGF is a joint venture between Emaar and MGF. In my opinion, Emaar's brand name coupled with its international expertise will enable Emaar MGF to develop the prestigious projects in a timely manner.

 

• Higher proportion of well-diversified land bank is fully paid:

Given the aggressive development plans by the real estate developers, land acquisition cost is going to increase significantly for the developers. Emaar MGF has made full payment for 89.0% of the total land reserves.

 

• Aggressive expansion plans in hospitality

The demand for accommodation across the hotel sector is gaining momentum due to increased international and domestic tourism, increased business travels and growing investment in infrastructure. To capitalise on this opportunity, Emaar MGF is planning to develop 4,960 hotel rooms across cities over the next five to seven years.

 

• Other initiatives
• Emaar MGF is also planning to foray into healthcare and infrastructure projects.
• In the healthcare business line, the company has entered into a memorandum of understanding with Fortis Healthcare to develop hospitals, which would be positioned as "one-stop shops" for healthcare facilities in the Tier-I and Tier-II cities of India.
• The company plans to develop 25 hospitals with capacity ranging from 75 to 125 beds in joint venture over the next 10 to 12 years.
• In infrastructure projects, Emaar MGF has bid for the development of the international airport at Amritsar in Punjab. It includes commercial operation and maintenance of the airport terminal spread across 41,000 square meter and city side development covering 30 acre.

 

Key concerns

• 80.0% of land reserves comprise agricultural land
• Higher concentration of land bank in northern region
• Execution risk

 

Valuation

Using the net asset value (NAV) valuation method, it comes out that NAV of this stock is Rs 754 per share. Given the well-diversified land bank, the parent company's advantage and plans to expand into the other verticals of the sector, Emaar MGF should trade at 1.1x NAV multiple, indicating a fair value of Rs 830 per share. I would recommend Subscribe option to all my readers, taking into account excellent future of the infrastructure industry in India in the next 3-4 years.