Omaxe left lot on table for investors

Nifty BSE | NSE 25/05/12 Are Mutual Funds betting on Nifty?

Q: Should Omaxe get a pat on the back; it has chosen a good day as well?

A: Yes, it should but lot of things have happened in the interim in the real estate space so I don't know whether it sullied the mood a little bit on real estate IPO's. If this whole volatility in the markets has not happened and Puravankara had not happened may be Omaxe was headed for a Rs 450 listing but I suspect today it might be just a bit tempered may be Rs 400-410 that's the kind of listing you will see.

The NAV calculations of Omaxe since its fashionable to talk about NAV's in valuing the real estate stocks, is around that Rs 400 mark, give or take out a few rupees; should it trade at one time NAV? I think so, because it's not a bad company and you should see at least Rs 400-410 on that stock.

In terms of PE multiples their earnings would be fairly robust this year, and next year they should report no nothing less than Rs 34-35 earnings this year, may go on to do Rs 50 per earnings in earnings per share in FY09. If you just do that on Rs 400 they are talking about eleven times this year, may be eight times the next year earnings. So in terms of PE multiple it does not look very expensive at all.

Now there are two issues; Omaxe is good because it left a lot on the table. I don't think Omaxe is the best real estate company in the country; if you just compare like-to-like I think there is much more to say in favour of companies like Unitech, DLF and some of the others compared to Omaxe. Omaxe is beauty lay in the price it came with a Rs 300-310 and I think because of that because it left a lot of on the table it will go on to list very well at a more than 30% kind of premium. And it deserves to trade in that Rs 400-425 kind of band, given earnings prospects and given the kind of NAV that the stock has.

Having said that it's not a big city play completely, I think about half roughly from the NCR region and at least half of its land bank is outside the NCR, so B and C (hi r u in office or on Sea beach, plse check) cities where the prospects are little tricky in terms of prices going forward. So because of the composition of the land bank I think it may not deserve the 1.25 times or 1.2 times NAV with some of its frontline peers trade at.

I am not saying it's a bad company it's a reasonable company but it came at very good price point and because of that you will trade it up. But if it crosses Rs 450 in euphoria then you may want to reign in the optimism a little bit, because then the quality of the play comes into action as well. So it should get a good listing, my guess is between Rs 400-410-420 but beyond that I think you may want to draw the line.