Experts, brokerages feel Prestige valuations stretched

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Experts, brokerages feel Prestige valuations stretched

South based real estate company Prestige Estates Projects entered capital market with an initial public offering of Rs 1200 crore. A price band is at Rs 172-183 per share.

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South based real estate company Prestige Estates Projects is looking to hit the capital market with an initial public offering of Rs 1200 crore. The price band for the issue is set at Rs 172-183 per share.

The company has received commitment of Rs 215.46 crore from 23 anchor investors on Monday, which included names like Reliance MF, Sundaram BNP,  HDFC MF, Govt of Singapore, Master Trust Bank of Japan, DSP Blackrock, Credit Suisse etc.

But experts as well as brokerage houses feel that valuations of Prestige look stretched. Eveyone advised avoiding the issue. Aashiesh Agarwaal of Edelweiss Securities said that the current valuations of Prestige IPO do not provide margin of safety. He is concerned on high debt and cash flow requirements of the company. Hence, Agarwaal recommends staying away from the issue.

Even brokerage houses like Angel Broking and KR Choksey recommended avoiding the issue.

Investment Advisor, SP Tulsian says, "The issuer and BRLM has courage to price the issue so aggressively. The only advice which can be given by us is to just avoid it. Better and much cheaper players are available in the listed space."

"The company had a total debt of Rs. 2,019 crore as at 30-06-10 and repayment of just Rs. 280 crore, will still keep the company quite leveraged, considering net worth of Rs. 788 crore, as at 30-06-10 and Rs. 2,000 crore, post IPO. This will also make the company, the most leveraged amongst the listed peers. On post issue basis, the company is looking for market cap of Rs 5,700 crore and enterprise value of Rs 7,700 crore, which is far stretched when compared to its listed company peers. This kind of valuation is not given to realty companies having strong presence in Mumbai, where average selling price is ruling between Rs 10,000 to Rs. 20,000 per sq. feet," Tulsian explained.

KR Choksey has recommended avoid on the issue on back of the following factors 1) significant exposure to the commercial segment 2) highly leveraged balance sheet 3) largely concentrated in southern region of India. "On the upper price band of Rs 183, the stock is valued at P/BV of 3.06x at its post issue the BV per share of Rs 59.8, which is higher than the industry average of about 2x," the report says.