Stay away from Lanco Infratech IPO: Choksey

Deven Choksey of KR Choksey Securities believes that Lanco Infra IPO is largely for institutional investors and for those who have an appetite to stay in the infrastructure space for a longer period of time. Retail investors should stay away from this issue.

Excerpts from CNBC-TV18's exclusive interview with Deven Choksey:

Q: Lanco is a little bit more of a complex business; it has got many elements, which of those elements do you like?

A: I think you are very right, there are two aspects, one is the holding company aspect. The holding company holds investment in various power projects, which are either commissioned or are in the process of being commissioned and they are putting up further capacities and taking over some of the stakes.

If you look at the holding company structure and the investment in the power project then look at the revenue coming into the books of the company, maybe I think the valuations are looking quite stretched. But as we have seen in such a kind of scenario, wherein the companies are going to unfold their projects at some point of time and maybe unlock the valuation then the shareholders, who have been holding company, would get little bit more benefitted in the second stage.

In my viewpoint, given the kind of an issue and its complexity, this particular IPO is largely for those investors who are institutional investors and who have an appetite to stay in the infrastructure space for a longer period of time.

The other business model, which this company is entering into is the realty space and again around 19.5 million sq ft of land either owned or the development rights, they are going to be coming out with and probably I think develop those lands over a period of time. To that extent, the valuation would be seen over a period of time from that area.

Only issue, which I probably wanted to find out more from the management of the company is that they have a larger part of the development belonging to the company’s own development efforts.

To a great extent, it should be seen whether the timely delivery happens. More or less I think it will be in the Hyderabad and Andhra Pradesh region, both in IT and residential segment. So to a great extent, it is dependent on one particular region of the country, otherwise as I have said the investors who have a long-term horizon for this kind of business, should be coming into this company.

Q: So how would you value the land bank and the sort of orderbook they have in the construction part of their business?

A: About Rs 1600 crore worth of orderbook is seen over there, out of which Rs 1200 crore belongs to the group activities in this space. Land bank valuation would be slightly tricky at this point of time to get into but as far as the cost part of the valuation, which we have seen and if you are looking at the diluted equity of Rs 220 crore, it comes to somewhere around Rs 35 per share as far as that valuation is concerned.

We will have to actually see the market valuation part of the land and maybe the property when they develop it. I think we will have to see it further but Rs 35 per share is largely the cost part of the valuation.

Q: So what is the bottomline; subscribe to Parsvanath and stay away from Lanco?

A: For retail investors, yes, subscribe to Parsvanath and possibly stay away from Lanco. For institutional investors, who have infrastructure as their focus and want to stay invested for four-five years then equally subscribe to Lanco. You may also get further opportunity to buy from this stock post listing.