Emaar MGF, Lodha Developers IPO on wait & watch mode

Big ticket realty initial public offerings have pressed the caution button on the back of poor listings recently and the Securities Exchange Board of India's new mandate for qualified institutional bidders. CNBC-TV18's Priyanka Ghosh reports how that has put Emaar MGF and Lodha Developers on the the wait and watch mode.

In an earlier interview to CNBC-TV18, Deepak Parekh, Chairman, HDFC, said, "If one IPO of a developer fails and there are many many in the pipeline, it will be bad news for the developer and the next round will not be able to raise money. So, please be careful on valuations and timing."

Those words of caution seem to have fallen on deaf ears. Since January, three companies have launched IPOs. Except Godrej Properties, which cashed in on the Godrej brand, others received lacklustre response.

The biggest flop was DB Realty. Analysts say the company was forced to discover its book at the lower end of the price band.

Bad market conditions have left Lodha and Emaar MGF worried. Both companies are sitting on Sebi's cleared proposals to mop up more than Rs 6,600 crore.

But analysts have a different view. SP Tulsian of sptulsian.com said, "We all know DB had an IPO size of Rs 1,500 crore and the companies we are talking about, whether it is Emaar MGF, Sahara City or Lodha Developers, have an issue size ranging between Rs 2,900 crore and Rs 3,300 crore. I don't think the market had appetite unless you make the valuations quite attractive, which looks unlikely on the part of all these promoters

Sources say these companies are now re-considering their expectation on valuation. SEBI's new mandate on QIBs to put in 100% money at the time of application may affect investors' strategy and their expectation on returns. And, that may also put pressure on valuations.

The IPOs waiting in the wings are now in a dilemma. If they want to avoid SEBI's new thumb rule, they must bring out issues in April. With the primary markets not expecting any major divestment rollout in April, it may be a good time as investors will have fewer options.

On the flipside, reportedly certain listed companies are planning to launch a second qualified institutional placement. At current market price, the QIPs may look more attractive. Which way the tide of realty IPO rush will turn is a wait and watch for now.