Finquest Sec positive on Parsvnath’s future prospects

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Parsvnath Developers, the Delhi-based real estate developer, is going to tap the capital market with an initial public offer, IPO to raise up to Rs 1,000 crore (Rs 10 billion) on Novermber 6, 2006.

The issue closes on November 10, 2006. The issue constitutes 18.30% fully diluted post-issue paid-up capital and the price band has been fixed between Rs 250 and Rs 300.

The issue comprises a net issue to the public of up to 3,30,38,000 equity shares and a reservation of up to 2,00,000 equity shares for subscription by employees.

The funds raised from the equity issue are to be deployed in various ongoing projects across India.

The company is currently engaged in a variety of projects, involving 20 integrated townships, 25 residential projects, 27 commercial complexes, including shopping malls, multiplexes, office space and a complete metro station. Further, the company has obtained in-principle government approvals for the development of nine SEZ projects. 

The Finquest Securities report on Parsvnath Developers:

Parsvnath is one of the leading real estate development companies in India with operations in 41 cities and 14 states. At present Parsvnath has acquired land or development rights in connection with the development of 19 integrated townships, 26 commercial complexes including shopping malls, multiplexes, office space and a complete metro station and 24 residential projects. The company also intends to construct 13 hotels and three information technology parks on commercial land acquired by them or in respect of which the company have development rights. Further, Parsvnath has obtained in principle approvals from Government of India for the development of nine SEZ projects.
 
Investment rationale

Robust land bank at emerging locations

The company has the ability to identify locations, which are relatively underdeveloped at present but has the potential to become tomorrow's prime locations. This strategy helps company in low cost of land acquisition in addition with the first mover advantage in such locations. These locations are in radar of the IT, ITes and other manufacturing companies.

Reputed developer

Parsvnath has a strong foot hold in Northern parts of India and is known for his quality and timely construction. Over the years Parsvnath has been successful in creating brand awareness for itself through aggressive marketing and advertising. It is the first company to receive a rating of DR 2-ICRA-NAREDCO from ICRA, which is given for a "strong project development capacity". It has also receives ISO 9001:2000, ISO 14001:2004, and OHSAS 18001:19999 certifications from RINA.

Well knitted marketing web

The company enjoys a strong marketing network in India. The company's marketing is structured in consideration of the nature of the project and the customer base at which the project is targeted. Parsvnath's sustained and structured marketing over the cycle of the project results in wide exposure of the products to the target audience. Parsvnath has reputed clientele list for its shopping malls and retail outlets, brands like Big Bazaar, Raymonds, archies, Spencers, Pizza Hut, McDonald's and Khana Unlimited.

Diversified business model

The company has diversified business presence in 14 states and 41 cities, thus reducing the locational concentration. PAN India presence along with diversified portfolio comprising of commercial buildings, malls, and multiplexes will help the company to generate revenue in different forms like lease rentals, outright sale etc. Also the residential properties are built based on the needs and budget targeting to both high and low income groups.

Austere project monitoring complimented by efficient procurement policy and logistics

Parsvnath follows an integrated manual that covers each core activity relating to construction and development of projects including documentation and regulatory requirement, material purchase, risk identification, operation control and occupational health and safety. These all measure has helped the company in delivering projects in timely schedule and at reasonable prices. The company has a decent purchasing policy in place for timely procurement of raw materials at reasonable prices. It also follows "just - in - time" policy to reduce the storage cost.

Investment concerns

Margin pressure

The company may face pressure on margins due to increasing raw material prices of iron & steel, cement or decreasing sales volumes due to slump in property prices.

Slump in real estate scenario

Real estate sector is highly price and sentiment sensitive. Any change in the sentiments of the general public affects the prices drastically. Also any environmental changes can lead in drastic fall in real estate prices. Thus this situation may cramp the company's inventories and properties making them low realisable.

Valuations

Parsvnath has a sizable land bank available for development at prime locations. The portfolio of properties is well diversified, enjoying a strong marketing network in each of the fields. The company is also gearing up to enter into new arenas of real estate like SEZ's, hotels and technology parks. With its present model of quality execution of projects at reasonable prices Parsvnath will be one of the prime beneficiaries of the real estate growth story in India. The issue is priced at 38x the upper band of diluted FY'07 annualized EPS of Rs 8. We are positive on the company's future prospects.