Subscribe to Parsvnath Developers IPO: Angel Broking

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Parsvnath Developers, the Delhi-based real estate developer, is open for subscription with an initial public offer, IPO to raise up to Rs 1,000 crore (Rs 10 billion).

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 book running lead managers to the issue are Enam Financial Consultants, JM Morgan Stanley Financial Services and DSP Merrill Lynch.  Intime Spectrum Registry is the registrar to the issue.

The Angel Broking report on Parsvnath Developers IPO: 

Recommendation - Subscribe

Objects of the issue

• Expenditure on development and construction of projects
• General corporate purposes
• Issue expenses

Company Background

Parsvanath Developers is one of the leading players in the organized real estate space. It has a pan India presence, spanning across 14 states and operating in 41 cities. The company has come a long way since its establishment in 1990, from building residential projects to cover the other spectrums of the industry, giving it a much more diversified project portfolio.

The company directly holds or has development right for 108.64mn sq feet of available area. This will lead to the development of 20 integrated townships, 27 commercial complexes including shopping malls, multiplexes, office space and a complete metro station and 25 residential projects. The company also has plans to enter the hospitality space and intends to construct 14 hotels, across categories. The company also plans to develop 4 IT parks and has received an in principle approval from the Government of India to develop 9 special economic zones, SEZs.

Growth triggers

Housing sector

The tenth five-year plan estimates a shortage of 22.4 million dwelling units. Thus, in the coming 15-20 years, 80-90 million housing units will have to be constructed with a majority catering to the low income group. The 2001 census indicates an urbanisation rate of 27.78%, which is expected to go up to 41% in the next 20 years. Urbanisation, coupled with higher disposable income, easy availability of loans and tax incentives, are the key drivers for a housing boom.

Office premises

Another major booster for the growth of real estate is growing demand for office premises by booming IT industry especially the BPO sector. It is expected that India would continue to be one of the preferred destinations for setting up back office operations.

Shopping malls, multiplex cinemas

The increase in disposable income coupled with more brand consciousness results in higher sale of branded goods. With organised retailing poised for sharp growth in the near future, requirement of real estate will be essential.

Hotels/Resorts

India is emerging as a global tourist destination. With the increase of disposable income, the propensity of spending on a vacation is increasing considerably. Besides, with foreign companies setting shop in India, business travel has necessitated the requirement of business hotels/ resorts. This increasing demand in the hospitality segment across India, is offering another opportunity for real estate development. Parsvanath is in talk, in developing 14 properties, in this space."

Current Projects

Residential Projects

The company is currently in the process of developing 25 residential properties. The company develops standalone dwellings, apartments and row houses that are generally incorporated into a larger development that may include additional amenities such as gymnasiums, gardens, pools and recreational areas.

Commercial Projects

The company is in the process of developing 27 commercial complexes such as shopping malls, multiplexes and office premises. The company has entered into an agreement with the Delhi Metro Railway Corporation, DMRC, to develop eleven commercial complexes, on a build operate and transfer basis.

Company has also entered into a memorandum of understanding dated August 17, 2006 with Movietime Cineplex. Pursuant to this agreement, the company will develop standalone cinemas and multiplex cinemas incorporated into mall developments, which will be leased to Movietime Cineplex. The term of the agreement relates to the development of 100 screens.

Integrated Townships

The company is in the process of developing 20 integrated townships in India all of which are in various stages of development.

Valuation and Outlook

The company is in a high growth area of real estate development, which offers tremendous opportunities. The company has 108.1 million square feet of development rights. The company plans to develop IT parks and hotels, besides getting in principle approval for 9 SEZ's.

For the FY2006, on a post diluted equity base (including the green shoe option), the company has an EPS of Rs 7.9 and price to book value of less than 3.1x. In terms of P/E ratio the stock trades at 31.6x at the lower price band of Rs 250 and 37.9x at the higher price band of Rs 300. Given the high growth and future prospects of the company, we recommend investors to Subscribe to the issue."