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DLF's mega IPO to open today

Billionaire KP Singh's DLF, which is offering 17.5 cr equity shares through 100% book building process, fixes the price band at Rs 500-550 per share.

business Updated: Jun 11, 2007 08:43 IST

The much-awaited initial public offer of real estate giant DLF opens tomorrow to mop up Rs 9,625 crore in India's biggest share sale issue, but analysts are divided on whether the stock is overvalued.

Billionaire KP Singh-promoted DLF, which is offering 17.5 crore equity shares through 100 per cent book building process, has fixed the price band at Rs 500-550 per share. The mega-issue would make it among the 10 largest firms on the bourses with a value of Rs 93,700 crore on the upper band.

While company officials claim the price band fixed was investor-friendly with lots of upsides, analysts and brokerage house are divided over the valuation of the stock.

"We arrive at an NAV (net asset value) of Rs 512-517 per share. The IPO at the price band of Rs 500-550 is at two to minus six per cent discount to its NAV," brokerage house Edelweiss said in its latest report.

The upsides to the DLF valuation could arise from 554 acres of land, which is not included in the 10,255 acre land bank as stated in the prospectus, and the company's foray into the new businesses like hotels, hospitals, SEZs, it said.

However, another brokerage house Enam said: "At the upper band of Rs 550 the stock trades at a significant premium to our base case valuation of Rs 404. We believe the stock is overvalued and initiate coverage with Sector Underperformer rating and a price target of Rs 404".

Raising concern about DLF's over-dependence on Gurgaon, Angel Broking said, "This is a big concentration in one city, considering the fact that Gurgaon is a satellite town and it took DLF 30 years to develop the 3,000 acre DLF township.

"On the basis of the prevailing property prices in the cities where DLF has its projects and also considering that DLF would realistically be able to develop all this property we have arrived at a net asset value of Rs 475/480 on the lower and upper end of the price band," Angel Broking said.

"When DLF lists on the stock exchanges, probably in the first week of July, it would cause a change in the Sensex and Nifty compositions and will make it to the index heavyweights list," an analyst said.

The promoters, who will be retaining 87.4 per cent company, will become one of the richest man in the country after the issue is listed on the bourses some time in July.

The proceeds from the issue will be invested in acquisition of land, funding existing projects and prepayment of the loans of the company.
DLF has forayed into fields such as hotels, insurance, infrastructure and SEZs, besides increasing presence in real estate projects in residential, commercial and retail space.

From the IPO money, DLF will invest Rs 3,500 crore in acquisition of land and development rights, Rs 3,493 crores for funding existing projects and the remaining amount for prepayment of loans of the company, DLF has said.

First Published: Jun 10, 2007 16:52 IST