Nitesh Estates Limited is tapping the capital markets with an IPO which has already opened and is to close on Tuesday the 27th of April. The issue is to raise Rs 405 crs in a price band of Rs 54-56.
| Nitesh Estates Limited | |
| Price Band | Rs 54 – Rs 56 |
| Issue size in Rs | Rs 405 Crs |
| Offer size in shares | 7,50,00,000 shares at Rs 54 – 7,23,21,428 shares at Rs 56 |
| QIB’s | 3,75,00,000 Equity Shares at Rs 54 |
| Non Institutional Investors | 1,12,50,000 Equity Shares at Rs 54 |
| Retail Investors | 2,62,50,000 Equity Shares at Rs 54 |
| Pre Issue Shares | 7,08,32,100 Equity shares |
| Post Issue Shares | 14,58,32,100 Equity Shares at Rs 54 |
| Marketcap post issue | Rs787.49 crs to 801.66 crs |
| Book Running Lead Manager | ICICI Securities Limited |
| Enam Securities Private Limited | |
| Kotak Mahindra Capital Company Limited | |
| JM Financial Consultants Private Limited | |
| Syndicate Member | Edelweiss Securities Limited |
| Isssue Opening Date | Friday 23rd April |
| Isssue closing date | Tuesday 27th April |
| IPO Grade | 2/5 by CRISIL indicating below average fundamentals |
| Bidding Lot | 100 shares |
Business
Nitesh Estates Limited is a Bengaluru based real estate company primarily focused on residential projects targeted at high-income and middle income clients or customers. It has a presence in hospitality, retail and commercial space but is primarily a residential developer. Nitesh does not follow a land bank model and believes in joint-development. The joint development model ensures low upfront land acquisition costs and instead there is sharing of revenue with the land owner or sharing of a portion of the land developed with him. The biggest advantage of this system is that it reduces the cost and working capital of a project and ensures low working capital cycles.
Nitesh Estates has completed a total of 0.86 million square feet of development which includes 0.55 msf of residential and 0.31 msf of premium residential by group entities. The ongoing projects comprise a total of 5.31 msf and the forthcoming projects total 2.65 msf making a total of 7.96 msf in the pipeline and under construction. The company through its associate company is developing India’s first Ritz Carlton Hotel in Bengaluru as well.
The company has marquee investors in Och Ziff, Citi and HDFC AMC amongst others. In the anchor investors category the company has been able to bring on board HSBC Bank, Nomura, SBI mutual fund and HDFC mutual fund.
The company is now shifting geographically as well by extending to Chennai, Hyderabad, Kochi and Goa.
Objects of the Issue
The broad objects of the net proceeds of the issue after meeting fees of various intermediaries like lead managers, selling commission, registrars to the issue, advertising and marketing expenses, legal expenses etc… are as follows: –
| Acquire joint development rights of our company | Rs 21.00 crs |
| Fund existing subsidiaries and the associate company for repayment/prepayment of loans, redemption of debentures, finance ongoing projects and finance the acquisition of joint development rights | Rs 303.44 crs |
| Repay certain loans of the company | Rs 35.69 crs |
| General Corporate Expenses |
Financials
The company reported on a consolidated basis revenues of Rs 87.80 crs for the year ended March 2009 and Rs 66.57 crs for the nine months ended December 2009. There is a profit before tax of Rs 4.05 crs for March 2009 and Rs 1.90 crs for the nine months ended December 2009. On a profit after tax basis there is a profit of Rs 2.575 crs for the year ended March 2009 while there is a net loss for the period ended December 2009 of Rs 1.325 crs.
Comparison
The company has compared itself with various players such as Ansal Properties, Brigade Enterprises, Mahindra Lifespaces, Omaxe, Orbit Corporation, Parasvanath Developers and others. All the above are profit making companies and therefore not strictly comparable. The business of real estate depends on area available for development and land bank. Here considering the past where Nitesh has developed close to 0.86 msf and has under development and forthcoming almost 7.96 msf or roughly 9.25 times of developed or executed area available gives you comfort about the future.
Key factors or risks
Nitesh has key partnerships and marquee investors. It is present in the middle income and higher end of residential construction and has created a brand and standard for itself. It is in the joint development model and therefore does not invest in land bank up front. It has an eminent board and is also developing a premium hotel in Bengaluru.
The dilution which is 50% is a key concern. The upside is limited in terms of operating margins simply because the company follows a joint development model. It does not pay for land upfront hence shares revenue or developed area with landowner.
Conclusion
The business model is different to what is followed conventionally by builders. A similar model is followed by Godrej Properties. This model has its advantages and disadvantages. The business is highly competitive. This issue is meant only for investors who are looking at the medium and long term. In the short term there may not be much that may happen.
Invest for the long term and avoid if one is looking for listing gains.
