Indiabulls Real Estate buys Pyramid Retail for Rs 208 cr

Indiabulls Real Estate 's arm, which is a part of the Indiabulls entire listed company; Indiabulls Wholesale Retail Services will take over the operations of Pyramid Retail. Pyramid Retail operates seven apparel stores & thirty-five convenience stores, she added.

Indiabulls will also make an open offer with the remaining 20% of the diluted stake in Pyramid Retail for between Rs 73-74 per share, Muthanna informed. Going further, Indiabulls Retail plans to set up a 150 stores across the country, she said. According to her, this is certainly a first sign of consolidation in the retail space; larger companies buying out smaller local businesses like a Pyramid Retail, which was primarily based in Bombay.

According to CNBC-TV18 analyst Rahul Arora, this is an interesting acquisition because Indiabulls Real Estate has actually through its own subsidiary, planned about Rs 1,500 crore expansion for retail arm and this will only help in giving them an inorganic presence because Pyramid Retail currently has about seven Pyramid apparel stores and about 32 convenience stores spread over 1 million sq ft of land and that is the direct access that they get.

The valuations of this deal are relatively interesting, Arora pointed out. CNBC-TV18 sources close to Indiabulls have revealed that Indiabulls has valued the company at Rs 208 crore and they have purchased the value of promoter shareholding, which is about 63.92% in the company, at about Rs 31.29/share.

Arora informed that Indiabulls has told Pyramid Retail that Indiabull will buy a promoter stake, debt-aside, which is about Rs 121 crore. So basically, Arora added, if one removes the debt which Indiabulls is now pumping into the company to wipe it out clean, just the equity component or promoter shareholding is valued at Rs 31. 29 approximately.

As per CNBC-TV18's calculation, if one calculates the ESOPs of about 160,000 shares, the price at which this deal should have ideally been done is at Rs 43/share approximately.

The reason this deal may have been done at about 30% discount to what CNBC-TV18's current price of what the deal should have been at, may be primarily because of the results Pyramid Retail has been displaying, Arora said.

For example, for Q2 of this year, Pyramid Retail has reported a loss of Rs 21crore versus Rs 9 crore for the same quarter last year and a net loss that has doubled to Rs 27 crore versus just about Rs 12 crore, he elaborated. For the H1 of this year, they have done a net loss of about Rs 45 crore versus Rs 12 crore, which is nearly 4 times the loss. And even at an operating level, the net loss is gone to about 2 times and these H1 figures are already in excess of the loses they did for the entire FY07, Arora added.

According to him, this company (Pyramid) has been in complete disarray as far as operational and bottomline performance goes; perhaps that is why the discount going in.

He said that if anyone valued the price at current market price, they (Indiabulls) would have paid what the current market of the company was. But Pyramid is a direct access to retail; over 1 million sq ft of land, which Indiabulls is getting at 30% to what they should have ideally paid, given the fact that they are wiping the debt, which is Rs 120 crore.

So it is good deal for Indiabulls Real Estate. But for Pyramid shareholders; the company is in the hand of Indiabulls, the development capabilities of which are not bad and this probably led both the stocks to react positively.