PURAVANKARA PROJECTS

Puravankara Projects is entering the capital market on 31^st July 07 with a public issue of 2.15 crore equity shares of Rs.5 each in the band of Rs.500 to Rs.525 per share. Here, the band has been kept in a narrow range. Is this the confidence of the promoters? Secondly, face value of share is Rs.5. Recently, HDIL, Omaxe and IVR Prime came with its public issue and all had face value of Rs10, with sizeable chunk of land bank. DLF came with face value of Rs.2.

So, one has to be extra careful while analyzing the fundamental worth of this company.

The company, as of 2^ndJuly 2007, have 32.97million sq. ft. of land area which would result in approx. 102.25 million sq. ft. of developable area or approx. 94.6 million sq. ft. of saleable area. This translates into an FAR or FSI of 3, which is generally available to hotels, or I.T. Park. How the company has been able to manage such a higher FAR? Of this, the company has land of 23.30 million sq. ft. with saleable area of 69.23 million sq. ft. in Bangalore. An FAR of almost 3. The remaining land area of 9.67 million sq. ft. with saleable area of 25.37 million sq. ft. are located at Chennai, Kochi, Hyderabad, Mysore, Coimbatore, Kolkata and Colombo. But again, all these land gives an average FAR of 2.60. Is this ratio available in these cities?

For FY 07, the total income of the company was placed at Rs.416.86 crores with PAT of Rs.130.40 crores resulting in an EPS of Rs.6.80 on equity base of Rs.96 crores. Not really great. Even net worth of Rs.221.76 crores as at 31-03-07 is nothing great to talk about.

The more irritating part about the financials of the company is the method of financing its land bank. The company has properties of Rs.948 crores held for development and under development as at 31-03-07. This has been financed by debt of Rs.676 crores and current liabilities of Rs.484 crores. Excess of Rs.212 crores having mobilized were used for loans and advances of Rs.230 crores. Not healthy way of financing.

The company now, proposes to mobilize Rs.1,125 crores at the upper band of Rs.525, which shall broadly be used for repayment of loan of Rs.420 crores and Rs.351 crores for acquiring 43.56 million sq. ft. land in and around Sriperumbudur and Kancheepuram near Chennai. However, this land bank is over and above 32.97 million sq. ft. held by the company. For acquiring this land, the company has entered into an MoU with Galaxy Properties Pvt. Ltd., who with its associates and nominees, own only 11.90 million sq. ft. while for remaining 31.66 million sq. ft. of land, the company will facilitate the acquisition. How can this be allowed, and that too with fund requirement of Rs.351 crores for such objectives? In the past, SEBI made it clear that the companies won't be allowed to mobilize funds from the public for acquiring land. So what's this?

By acquiring huge lands, with part payment having made from short term sources, a promoter retains almost 90% stake, dilutes 10% stake to public, mobilize a huge chunk from such dilution and pay off short term liabilities. What a novel way of excellent financial planning? The same planning has been availed by the company. Post issue, promoters would have 89.93% stake. Strangely, the company does not own its registered office. A company creating residential and commercial establishment, does not have one, of its own.

At upper band, post issue, valuation of the company would be Rs.11,200 crores. Sobha Developers a pre-dominantly, Bangalore realty company has market capitalization of Rs.6,500 crores. Parsvanath with saleable area of 150 million sq. ft. has market cap of Rs.6,800 crores. HDIL with saleable area of 112 million sq. ft. has market cap of Rs.12,800 crores. Omaxe with saleable area of 183 million sq. ft. should have a market cap of Rs.7,000 crores. IVR Prime Urban with saleable area of 75 million sq. ft. may have a market cap of Rs.3,800 crores.

So, when comparing with all other leading realty stocks, issue definitely looks expensive at both the ends.