HDIL IPO Expected to be a Winner

Stock is listed at a discount to rivals

Housing Development and Infrastructure Limited (HDIL) is a real estate company with operations in Mumbai and around its neighbourhood areas. HDIL’s business involves construction and development of residential projects, commercial and retail projects, slum rehabilitation and land development. The company also clears slum land and rehouses slum dwellers. The company develops infrastructure on land which is sold to other property developers.

HDIL is part of the Wadhawan Group (formerly Dheeraj Group), and has been involved in real estate development in the Mumbai Metropolitan Region for almost three decades. As of December 31, 2006, the Wadhawan Group has developed approximately 62.1 million square foot of saleable area. It has constructed approximately 16.3 million square foot of rehabilitation housing area under slum rehabilitation schemes. HDIL's promoters are Rakesh Kumar Wadhawan, Sarang Wadhawan, Kapil Wadhawan, and Dheeraj Wadhawan, who, together with the rest of the Promoter Group, hold about 73.2% of the outstanding share capital as of December 31, 2006. Sarang Wadhawan is the Managing Director of HDIL.

HDIL has built groups of apartments, multipurpose townships and towers for sale to individuals. It has also constructed office spaces, multiplex cinemas and shopping malls. HDIL undertakes slum rehabilitation projects under a Government scheme administered by the Slum Rehabilitation Authority in which developers are granted rights in exchange for clearing and redeveloping slum lands, including providing replacement housing for the dislocated slum dwellers.

Apart from Mumbai, they are planning to have presence in Kochi and Hyderabad as well. The expansion plans include building special economic zones, hotel projects and megastructure complexes. HDIL's total land reserves comprise approximately 112.4 million square foot of saleable area to be developed through 32 ongoing or planned projects. They have 21 ongoing projects, which are under construction and development, aggregating to approximately 45.9 million square foot of saleable area, and they have additional 11 projects, which are planned for construction and development in the future, aggregating approximately 66.6 million square foot of saleable area.

Another company belonging to this group, Dewan Housing Finance Corporation is listed in both BSE and NSE. The company offers loans to the lower and middle income groups.

HDIL sponsored the umpires’ shirts during Champions trophy in India in the year 2006 and also during the ICC Cricket World Cup in West Indies in the year 2007.

ICC Cricket World Cup 2007

Umpires Billy Bowden (New Zealand) and Aleem Dar (Pakistan) in a Super Eights match Australia v Bangladesh, Antigua on 31.03.2007

Image courtesy: www.cricinfo.com & Getty Images

Project List (Residential):

Project	Location	Status
Affaire	Bandra (W)	Under construction
Multiplex	Kandivli (E)	Under construction
Dheeraj Apartments	Jogeshwari (E)	Completed
Harmony	Goregaon (W)	Under construction
Row House	Kandivli (E)	Completed
Sneh	Bandra (W)	Completed
Swapna	Bandra (W)	Completed

Project List (Commercial):

Project	Location	Status
Arma	Bandra (E)	Completed
Dreams	Bhandup (W)	Under construction
Dreams The Mall	Bhandup (W)	Under construction
Kaledonia	Andheri (E)	Under construction

Financial performance of the company:

The sales turnover and adjusted profit after tax since 2004 are given in the following table:

Financial year	Turnover	Profit after tax
	Rs. Crores	Rs. Crores
2006 – 2007 *	848.84	367.23
2005 - 2006	434.86	117.29
2004 - 2005	64.93	14.58

* Upto 31^st December 2006

Details of the IPO:

Issue Period: June 28, 2007 to July 03, 2007

Issue Size: 2,97,00,000 Equity Shares (Excluding Green Shoe Option of 44,55,000 Equity Shares)

Issue Type: 100% Book Building

Face Value: Rs.10/-

Price Range: Rs. 430/- to Rs. 500/-

Market Lot: 14 shares

Retail Investor cap: Rs.100,000

Application forms can be downloaded from this link.

Red Herring Prospectus is available at this link.

Conclusion:

As the IPO is priced is at a discount to players of similar size, investors with a risk appetite may think of investing in this issue with a three or four years perspective. At the offer price band of Rs.430 – Rs.500, the P/E is 14 to 16 for the financial year 2006 -2007. Obviously it is difficult to compare this IPO with DLF in terms of issue size. Of late, Indiabulls real estate stock has been moving up in the stock market. We will have to wait for DLF stock to be listed to see how DLF is received by the market. But going by the company’s financial performance in the last few years and their presence in Mumbai area which is the commercial capital of India, stock should be able to do well. Response to DLF issue was not great from retail investors (80% subscription only). We will have to see how they react to this IPO.

SUNDARAMURTHY VADIVELU

The India Street

GurgaonMilleniumCity: First Global Report On Real Estate Developer-DLF IPO

GurgaonMilleniumCity: First Global Report On Real Estate Developer-DLF IPO

DLF, a leading real estate company, is open for subscription with an initial public offer, IPO of 175,000,000 equity shares of Rs 2 each through a 100% book building process.The issue would constitute 10.27% of the fully diluted post-issue capital of the Company.

Will India's real estate bubble burst?

By Mark Kleinman, Asia Business Editor

It seems destined to become one of the most ostentatious symbols of India's emerging wealth. Situated in the heart of Mumbai, the new $500m (£255m), 28-storey home of Mukesh Ambani, chairman of Reliance Industries and one of India's richest men, will tower above its surroundings: on one side, a view over the Arabian Sea; on the other, a panoramic perspective across Asia's biggest slum.

	India's economic growth last year was more than 9pc

This juxtaposition of wealth and extreme poverty underlines the vast potential of India's burgeoning real estate industry, into which hundreds of millions of dollars are being poured every month.

This week, one of India's biggest property developers, DLF Universal, is undertaking the biggest domestic share offering to date, with a fundraising target of about $2.4bn.

Run by one of the country's wealthiest people, Kushal Pal Singh, DLF is expected to be valued at about $23bn once the listing, handled by banks including Citi and Merrill Lynch, is completed. The flotation on India's National Stock Exchange will not be DLF's first attempt, having aborted an effort to list last August amid concerns about its valuation.

DLF has ambitious plans to use proceeds of its IPO to accelerate its expansion by swallowing a larger chunk of the demand for new residential and commercial property.

India's economic growth last year was more than 9pc, its second-fastest level since the country gained independence from Britain in 1947. India's young and increasingly wealthy middle-class are buying homes at an unprecedented rate. Property analysts expect demand for at least 20m new homes in five years. The overall real estate market is forecast to be seven times larger by 2015. Foreign investors, including 3i and Blackstone, the private-equity groups, have signalled an intention to grab a slice of the Indian economy with funds dedicated to infrastructure projects, which most analysts consider to be the most urgent requirement.

A property boom in India is potential good news for hordes of British retailers and leisure companies, such as Mothercare and Whitbread looking for development opportunities.

"India's real estate opportunity is genuine, large and will last a long while - a prospect not lost on developers and capital providers," said Ashish Jagnani, a Mumbai-based real estate analyst for Citi.

Since the beginning of last year, at least eight companies with an emphasis on the Indian property market have listed in London. Yesterday, seven of them were trading beneath the price at which they listed. In total, the companies have a market value of well over £1bn.

Among the glut of Aim-listed Indian property funds to have underperformed in share price terms is Trinity Capital, which raised £238m when it floated at 100p in April 2006. Despite being fully-invested in a range of commercial, hospitality and residential projects, the share price has continued to trail behind at around 90p.

Some analysts warn of the risk of a bubble in Indian real estate prices that could undermine growth prospects for the whole market.

Yesterday, a fund set up to invest in non-performing Indian assets, Dhir India Investments, announced plans to list on Aim and tap into a market for distressed assets estimated by PricewaterhouseCoopers to be worth $50bn.

But if bearish predictions of a real estate bubble are accurate, that pile of distressed assets could turn into a mountain as tall as Mr Ambani's new home.

DLF public offer subscribed to about 80% of its size at first day-

By Avadh Singh

The much-anticipated DLF public offer was subscribed about 80% of its size at the completion of the first day, with the institutional part of the IPO subscribed 1.5 times.

When The India Street looked at the data on the NSE, it clearly showed that compared to 17.5 crore shares on offer, there was demand for about 13.6 crore shares at the close of Monday’s bidding. In theory, at the Rs 500-550 per share price band, the company could mop up about Rs 9,600 crore.

If experts are to be believed, thinking on the part of the company and the merchant bankers was to price the issue at about Rs 525-535 per share and not at the upper end of the band, at Rs 550. In my opinion, by pricing the IPO slightly lower than the upper end, the company would leave some scope for appreciation on listing.

”While the DLF offer got a decent response in the official market, it got a lukewarm response in Gujarat’s grey market with operators and investors preferring to wait and watch,” pointed out Raghu Romeo, stock market expert. It is worthwhile remembering that the per-share premium in the offer, which was quoted around Rs 45 when the issue was formally announced, has now fallen to a range of Rs 29-34, amid thin volumes of trade in the grey markets.

Though, hectic routine was witnessed on application buying counter with operators in the grey market acquiring DLF IPO application at rates ranging between Rs 3500 and Rs 4,000. “I have found it very difficult to fetch a premium of Rs 29 on DLF shares,” one of the participants of the grey market said.

Though the premium on the issue has gone down, few of the participants expressed their hope and said that the IPO can fetch higher premium if the stock markets witness upward trend.

When The India Street contacted several grey market operators, they said that DLF IPO evinced lukewarm response in Ahmedabad market because of the higher valuation of the stock. Another reason that has dampened the sentiment for the DLF IPO in the grey market could be deluge of other IPOs. DLF offering is expected do well in categories other than retail, where it still faces resistance from smaller IPO, which are more fancied.

The pivotal factor here is that leading private sector bank, ICICI Bank has also announced that its follow-on offer is hitting the markets on June 18. It may be pointed out that lots of companies are queuing up to hit markets in the next two moths and funds worth Rs 50,000 crore is expected to be raised from the markets.

Read more DLF IPO articles here

ICICI bank’s mega follow-on issue expected to open on June 18

By Avadh Singh

It has come into the notice of The India Street that ICICI Bank’s mega follow-on issue is expected to open on June 18, a week after the opening of DLF’s IPO. The pivotal factor here is that ICICI Bank aims to raise at least Rs 10,000 crore from investors, on the other hand DLF is raising between Rs 8,750 crore and Rs 9,600 crore.

Experts are of the opinion that the bank’s offer will get a positive response even though the time gap with the DLF offer is less. “There is a demand for quality issues. ICICI Bank’s offering should, therefore, get a good response,” pointed out Mita Vashist, CEO of Mita investment.

No doubt, bank has witnessed a growth in its assets, particularly in the loan and investment segment, because of the growth in Indian economy. The fund will also help it fulfill the Basel II guidelines, which need banks to maintain higher capital for number of asset classes.

ICICI is also planning to use the funds for its overseas and rural operations. In addition, bank has also expanded the range of its commercial banking products for its international customers. The bank has subsidiaries in the UK, Canada and Russia. It has branches in Singapore, Dubai, Sri Lanka, Hong Kong and Bahrain.

Theoretically speaking, ICICI Bank’s domestic issue is part of a $5bn capital-raising programme. In addition to the local issue, ICICI Bank has a goal to raise another $2.5 bn from the issue of American Depository Receipts.

In addition to the equity issues, ICICI Bank is also raising money by selling shares of the holding company for its insurance businesses. The timing of the stake sale in the holding company would be judge by clearances from Reserve Bank of India and IRDA.

It is worth mentioning that this week, ICICI Bank gets permission from the Foreign Investment Promotion Board to sell up to 24% equity in ICICI Holdings. Though, the bank will be offering only 5% to international investors.

"The bank proposes to transfer its holdings in ICICI Prudential Life Insurance, ICICI Lombard General Insurance and ICICI Prudential Asset Management,” pointed out ICICI official. If experts are to be believed, bank could get up to $500 mn for a 5% stake in the holding company. Meanwhile, the bank is expected to price its share above Rs 900.

Though, it will give shares to retail investors at a discount. In my opinion, the main challenge for ICICI would be to generate interest among retail investors given the present market price of around Rs 903. In its earlier public issue, the retail portion get only 70% subscription.

DLF IPO Overview

Overview:

DLF Universal Limited, originally registered as Delhi Leasing and Finance on 18^th September, 1946, is a leading real estate developer in India. It was founded by Chaudhary Raghuvendra Singh. Now headed by Kushal Pal Singh, the company essentially focuses on residential, commercial and retail segments of the real estate industry.

Mr. K.P.Singh is the son-in-law of the founder Chaudhary Raghuvendra Singh. He and his family together own about 99.5% of DLF group shares estimated to be around $10 billion as reported by Forbes magazine in 2006. He got selected to the Indian Army by British Officers Services Selection Board, UK. Subsequently, he joined the Indian Military Academy at Dehradun. He was commissioned into The Deccan Horse, a renowned cavalry regiment of The Indian Army. In the year 1960, he joined American Universal Electric Company, a joint venture between Universal Electric Company of Owosso, Michigan and the Singh family. Subsequently, he promoted another company, Willard India Limited in collaboration with ESB inc., Philadelphia for manufacturing automatic and industrial batteries in India and became its Managing Director. In the year 1979, he joined DLF Universal Limited. American Universal Company merged with DLF Universal Limited and Mr. Singh became the Managing Director of this new company.

Between 1969 and 1974, the group built around 22 colonies in Delhi and neighbourhood areas. In 1975, they began developing the DLF city, spread over 3000 acres in Gurgaon, a suburb of Delhi. Today, DLF City, spans five phases and encompasses high end residential, commercial, corporate and institutional complexes besides community, recreational and health facilities for varying sections of society.

In 1982 the group ventured into housing projects. They followed it up with building community shopping centres in 1989, “A” grade office space in 1991 and organized retail complexes in 2002. The group expanded their primarily Delhi based business into nationwide in 2003, constructing IT parks, homes, retail outlets, SEZs (special economic zones) and hotels. In 2004, a 125 acre cyber city was commissioned in Gurgaon, Haryana. DLF Cyber City is one of India’s largest integrated technology parks, which provides some of the most advanced and integrated workplaces spread over 125 acres.

In 2005, the group launched a premium residential complex project in Mangolia. Last year, they expanded their business into 29 cities across India. They also launched Park palace, a premium residential complex across select cities.

Business plans:

Office space: 62 million square foot of office space are being planned. The IT parks are located at Chandigarh, Kolkata, Bangalore, Pune, Hyderabad, Chennai and Noida.

Homes: 220 million square foot has been developed as colonies and townships in the past, including 17 million square foot of residential properties. 9 million square foot of saleable area is under construction and nearly 70 million square foot of residential projects across country in next 3 years has been planned. In the longer term 375 million square feet of residential space is being planned.

Retail outlets: Three shopping malls have been built in DLF City, Gurgaon. Two more in Delhi, two more in Gurgaon and one in Chandigarh will follow soon. Five malls in Delhi, one each in Jalandhar, Noida and Gurgaon are under construction. One shopping mall is to be launched soon in Kolkata. Three in Mumbai, 2 in Hyderabad, one each in Delhi, Ludhiana, Bangalore, Pune, Chennai, Cochin and Amritsar are being planned.

SEZ’s: SEZs are a new business concept in India, and provide attractive fiscal incentives for both developers and tenants. Each multi product SEZ will be developed as an integrated township and will include residential accommodations, commercial and retail facilities, as well as schools, hospitals, hotels and other support infrastructure, including captive power generation facilities.

Hotels: Recently DLF entered into a joint venture with Hilton to develop and own a chain of hotels and serviced apartments in India. An alliance agreement and shareholder agreement was formed between Hilton and DLF in 2006. Under the terms of the Alliance Agreement, the joint venture company plans to acquire and develop 50 to 75 hotels and serviced apartments in India under certain Hilton brands. Hilton will manage all of the hotels developed under this joint venture. The joint venture will receive an equity investment of up to US$550 million over the next five to seven years, of which DLF will contribute approximately US$407 million or 74% of the total equity share capital. The remaining US$143 million or 26% of the total equity will be contributed by Hilton. The joint venture company is in the process of evaluating 22 sites for the construction of up to 5,000 rooms catering to the business, four star, five star and deluxe segments of the hotel and serviced apartments market.

Infrastructure: DLF plans to venture into infrastructure also. The key focus areas are construction of expressways, highways, airports and other key infrastructure projects. DLF Laing O’Rourke (a joint venture between DLF and UK based construction major Laing O’Rourke) will be formed to execute various captive projects of the group.

Leisure: DLF golf and country club has a 18 hole par 72 Arnold Palmer Signature Golf Course. The City Club is spread over four and a half acres of green ambience in DLF City. World class recreational facilities and amenities are available. Equipped with Squash courts, modern gymnasium, swimming pool with an adjoining cafe, tennis courts, basketball hoop, table tennis, yoga and aerobic classes, there are also conference rooms, well appointed spacious rooms, an exclusive multi cuisine restaurant, banquet hall, cyber library, modern bar and billiards and card rooms.

Details of the IPO:

Issue period: Between June 11, 2007 and June 14, 2007

Issue size: 175,000,000 (10.26% of the fully diluted post issue capital of the company)

Face Value: Rs.2

Method: 100% book building

Price band: Rs.500 to Rs.550 (250 to 275 times face value)

Market lot: 10 shares

Minimum order: 10 shares

Retail investor cap: Rs.100,000 maximum

Application forms can be downloaded from this link. The Red Herring Prospectus is available for download here.

Conclusion:

This is really an excellent IPO. It looks great from their business model and future prospects, especially considering the demand for more housing, infrastructure etc. How it will be received by the stock market will have to be found out when it gets listed. Please read my earlier article “How do IPO’s fare in secondary market?”

SUNDARAMURTHY VADIVELU

The India Street