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IVR Prime Urban Developers - IPO

Tuesday, July 24, 2007

IVR Prime Urban Developers (IVR) is a subsidiary of IVRCL Infrastructure (IVRCL). The company began its operations in 2001 and has developed residential apartments and villas as part of the Gachibowli Village Project, aggregating 1.95 million square feet (sq ft). Parent company IVRCL has constructed 15.4 million sq ft of residential and commercial projects. IVRCL holds 80% stake in IVR Prime and its holding will come down to 62.35% after the IPO.

Strengths

  • On 21 June 2007, the land reserves measured approximately 2,478.85 acres, representing 75.45 million sq ft of saleable area in Hyderabad, Visakhapatnam, Chennai, Bangalore, Pune and Nodia. Of these reserves, 54.57% of land is in and around Chennai. The company plans to develop this land bank over the next five years.
  • As the focus is on construction of small houses, gestation period of about six-eight months is quite low.
  • Currently developing about 0.87 million sq-ft retail mall with multiplex cinema. This would include apparel store, restaurant outlets and entrainment centres as well as an IT park consisting of around 0.7 million sq-ft office tower above the retail mall. Plans include development of a business hotel of approximately 0.5 million sq ft.
  • Acquired land bank at an average cost of Rs 65 lakh- Rs 75 lakh per acre.

Weaknesses

  • As the focus is on mass housing, the demand for the company’s houses are likely to be more vulnerable to increase in EMI on housing loans on account of rise in interest rates and real-state prices. Also, non-extension Section 80-IB (10) benefit beyond 31 March 2007 will indirectly result in hike in prices of mass housing, impacting its demand.
  • End March 2007, advances from customers amounted to Rs 16.09 crore compared with Rs 18.48 crore (including advances from contract clients), down by 13%. Advances represent just 11% of revenue in year ending March 2007 (FY 2007). The company’s inventories have also declined 39% to just Rs 59.41 crore. Lower inventories and advances reduce the near-term visibility of revenues.
  • Of the total land reserves (saleable area), 27.71% is under memoranda of understanding (MoU).

Valuation

On 23 January 2007, Cushman & Wakefield had valued projects using net present value of the projects in the range of Rs 4998.4 crore and Rs 5524.6 crore after deducting the developer’s margin, the net present value of the land reserves was between Rs 2889.8 crore and Rs 3194 crore. The per share value after deducting the developer’s margin works out to Rs 450-Rs 498 per share. However, land reserves (saleable area) have increased 32% after the valuation report.

Consolidated FY 2007 EPS on post-issue equity works out to Rs 3.3. At the offer price band of Rs 510 - 600, the P/E range is 155-182.4, respectively. Comparable listed player according to size Ansal Properties is currently trading at 24.7 times its consolidated recurring FY 2007 earning. Nearest location-wise comparable company Sobha Developers is trading at 41.6 times its FY 2007 earning.

Given that it will take five years to develop the entire land bank and low near-term visibility of revenue due to low inventory and advance received, P/E is likely to come down to decent levels only in the long run.

Posted by FR at 5:48 PM  

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Investment in equity shares has its own risks. Sincere efforts have been made to present the right investment perspective.The information contained herein is based on analysis and up on sources that we consider reliable. I, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and I am not responsible for any loss incurred based upon it.& take no responsibility whatsoever for any financial profits or loss which may arise from the recommendations given in this blog.