DLF IPO Overview:
DLF is India’s biggest real estate developer.
DLF IPO is the biggest IPO ever in the Indian markets.
Price Band: Rs 500 - Rs 550.
Number of Shares to be offered: 17.5 crore shares (175 million shares)
Total IPO size – Rs 8750 – Rs 9625 crore (US$ 2.17 billion – 2.39 billion)
IPO offer is for 10.27% of company’s shares – thus market capitalization of the company Post IPO would be Rs 85200 crore – Rs 93720 crore.
Opens – June 11
Closes – June 14
A third of IPO proceeds will go to increasing land reserves.
Half of its land reserves are in NCR (National Capital Region – Delhi and surrounding areas) – this makes its fortunes highly dependant on real estate prices in NCR.
Many investment bankers including Citigroup believe that real estate prices may correct up to 40% in 2007-2008. DLF’s profits will take a big hit if this happens.
Currently the IPO has not excited the gray market much and is trading only at a premium of about Rs 40. This may change as the listing day comes closer.
The success of DLF IPO is also important for forthcoming IPOs of other real estate developers such as Omax (size Rs 1500 crore), HDIL (Rs 2500 crore) and IVR Prime (Rs 500 crore),
The biggest question is should you apply?
I would say “No”.
There is no use discussing eps and PE ratio for real estate stocks. The real estate market is highly volatile and no one can predict real estate prices one year down the line… especially in an over-heated market such as India.
I do not understand the land bank valuations of real estate companies and all analysts come up with different figures.
I am a big fan of Warren Buffet and I will follow his advice this time - “Do not invest in a business that you do not understand.”
DLF is India’s major real estate player and long term is surely good for it, but seeing the current real estate market and issue size of the IPO, I am staying out.
35% of the issue is reserved for retail category - that is around Rs 3000 crore worth of shares. Even if retail category gets Rs 10000 crore worth of applications, it will be subscribed just three times.
Even if DLF lists at a slight premium, if my judgement is right, the stock will be available at less the IPO price within next 12 months.