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Purvankara IPO: Our view - Views on News from Equitymaster
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Purvankara IPO: Our view
Aug 6, 2007

Due to the poor response for its public issue (36% subscription), Purvankara Projects Ltd. (PPL) has lowered its IPO price band to Rs 400 to 450 per share from Rs 500 to 525 earlier. In view of the changed price band, the closing date of the issue has been extended to August 8, 2007. At the upper end of the new price band, the company will be raising Rs 9.7 bn, as against Rs 11.3 bn earlier.

  • View our detailed analysis of Purvankara’s IPO

    About the company: Purvankara Projects Ltd. (PPL) is a real estate development company with a focus on developing residential and commercial properties. The company was incorporated as Purvankara Constructions Pvt. Ltd. in 1986 in Mumbai. The company’s current projects are primarily based in south India that cover Bangalore, Kochi, Chennai, Coimbatore, Hyderabad, Mysore, Colombo and the U.A.E. PPL’s operations span all aspects of real estate development, from the identification and acquisition of land, to the planning and execution and marketing of the projects. The company has so far completed 14 residential projects and one commercial project covering approximately 3.77 million square feet (msqft) of Saleable Area.

    Valuations and recommendation: Investors need to understand that real estate is a long-term investment class and as such, speculation in related stocks might be frought with high levels of risk. While land banks and development rights on them provides some sort of visibility for future growth, there are flip sides attached to it in terms of volatility in land prices and execution of planned development.

    Though the company boasted about its superior corporate governance practices in the Analyst meet, dearth of information relating to its planned projects raises serious concerns. As a result, we were unable to value the stock on a net present value (NPV) basis. Instead, we have valued the issue on a relative basis. On this parameter, the issue appears to be aggressively priced (even at the lower revised price band) when compared to the industry’s average price to earnings multiple (see table below). Hence we maintain our ‘Avoid’ view on the issue.

    Particulars (Rs m) Purvankara Omaxe Ansal HDIL* Unitech
    Developebale Area (msqft) 95 184 170 112 482
    Sales (FY07)* 4,169 14,313 8,687 20,518 32,883
    Market Cap (Rs bn)** 96 54 16 126 429
    Average OPM (FY04-FY07) 32.3% 14.1% 14.2% 23.3% 20.6%
    Average NPM (FY04-FY07) 25.7% 9.2% 9.0% 18.4% 14.7%
    P/BV^ 8.1 4.4 na 5.7 na
    P/E 74.4 20.8 24.1 19.2 34.7
    * Sales figure for HDIL includes work in progress and increase/decrease in stock. Average OPM and NPM for HDIL are three year averages (FY05 -FY07).
    **Market cap for Purvankara and Omaxe have been calculated at the higher end of the price band.
    ^P/BV are based on FY07 figures. In case of HDIL, Omaxe and Purvankara, the same has been calculated on post issue numbe or of shares.

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