IVR Prime Urban Developers IPO: May Want to Avoid in the Short Term

The India Street had previously analyzed three real estate developers IPO’s: DLF, HDIL and Omaxe. In this article let us analyze IVR Prime Urban Developers IPO. IVRCL Infrastructure and Projects Limited is a Hyderabad based company that is engaged in execution of infrastructure projects like water supply, irrigation, buildings, industrial structures, transportation Article Summary projects like highways, railways, The Issue: Should one power transmission projects like invest in this slightly substations, overpriced IPO? transmission/distribution lines and The Solution: It’s pretty rural electrification. Its subsidiary clear. Wait for a better company, IVR Prime Urban opportunity! Developers Limited have come out with an IPO (Initial Public Offering) to raise about Rs.720 to Rs.850 crores. Overview of Business: IVRCL Infrastructure and Projects Limited has about 80% stake in IVR Prime Urban Developers Limited. After the IPO it will come down to about 62%. IVRCL had an order book of Rs.6,637 crores as on September 30, 2006. IVR Prime has 6 projects in Hyderabad: Hitec City Project: This is located close to the Hitec (Hyderabad Information Technology and Engineering Consultancy) city and it is a residential cum commercial project. About 266,000 square foot of built up area is available for residential premises; similar area is allocated for commercial purpose. Hill Ridge Project: Located at Gachibowli, Hyderabad, it is a commercial project with built up area of 866,000 square foot for mall/retail section and 702,000 square foot for IT park. The project includes shopping mall, multiplex, office tower, dining and convention area. Adjacent to

the Hill Ridge IT park, a 250 room 5 star hotel project is underway. It is expected to be commissioned in about 2 years from now. At Gachibowli itself, a residential project known as Hill Ridge Springs is coming up. About 48,500 square foot of area is still to be sold. There will be 2,3,4 bed room apartments, duplex apartments, penthouses, clubhouse, floating gardens, gymnasium, tennis court etc. within the housing complex. Hill Ridge Villas, a 5 bedroom independent Villas project is planned nearby. About 50,000 square foot area is available for sale. Another residential project with total built up area of about 295,000 square foot will come up at Gachibowli. The following table shows the details of projects at Bangalore:
Location Jigani Prime lake, Begur Green vista, Whitefield Apartment, Whitefiled Kudlu, Hosur Road Type Residential Res./Comm . Residential Residential Residential Built up area 411,600 2,704,000 618,475 195,000 467,200

The following table shows the details of projects at Chennai:
Location Prime Pacific, Sriperumbudur Prime Celestial, Vayalur Type Residential/ Commercia l Residential/ Commercia l Built up area 23,391,720

20,447,600

Prime Auburn, Minjur Residential

3,781,500

The following table shows the details of projects at other locations:
Location Visakhapatnam Paiet, Pune Dengaragaon, Pune Bhajgaon, Pune Sector 121, Noida Type Residential Residential Residential Residential Residential Built up area 4705,350 1,000,000 1,742,400 2,944,000 1,076,368

Sector 119, Noida Sector 118, Noida Sector 144, Noida (SEZ)

Residential Residential Commercia l

780,682 2,874,960 2,000,000

It may be noted that IVR Prime has more residential projects than commercial projects. From the above tables, it can be seen that Chennai has more developable area (47 million square foot) that accounts to nearly 70% of the toal. The proceeds of the IPO will be used to complete projects, repay loans and make payments for development rights.

Financial performance in the past 3 years:
Item Income Expenditure Profit before tax Profit after tax 2005 21.85 20.63 1.23 0.71 2006 136.43 122.82 13.52 11.70 2007 147.83 110.26 30.85 20.68

All figures mentioned are in Rs. Crores. The EPS for the year 2007 is 4.60. IPO details: Start Date: End Date: Issue Size: Face value: Price band: Market lot: Minimum quantity: Retail investor limit: July 23, 2007 July 26, 2007 14,150,000 equity shares Rs.10 Rs.510 to Rs.600 10 shares 10 shares Rs.100,000

Application forms can be downloaded from this link. Red Herring Prospectus is available from this link. Following table illustrates the bid status at 1655 IST on July 23, 2007.
Total Issue Size Total Bids Received Total Bids Received at Cut-off Price No. of times issue is subscribed 14150000 10150 9020 0.00

Conclusion: The company is promoted by well known IVRCL group with an excellent track record in infrastructure and construction projects. IVR Prime has strong support from the parent company for technical expertise. IVRCL itself has a strong order book, and hence additional manpower will be needed for IVR Prime.

The P/E ratio at the lower and upper price bands work out to 111 and 130 respectively. For the construction sector highest P/E is 173, lowest is 2.4 and composite is 32. Hence the IPO may be considered slightly overpriced. It may be interesting to note that, except the Gachibowli project in Hyderabad, IVR Prime has not executed any other project. The remaining are only in planning or miniscule stage. Moreover, the vast developable area is around Chennai where real estate prices have already gone up recently. The company owns only 14% of its projected 2,478 acres. It has only development rights for about 58% of land. 21% of the land is in agreement stage. 70% of the land payment is still pending for the company. Considering these factors, it is difficult to visualize reasonable earnings in the near term. The IVR Prime IPO may not get a good investor response unlike DLF (which has been reasonably well received in secondary market), HDIL or Omaxe.

Sundaramurthy Vadivelu LABELS: IPO, INDIA STOCK MARKET, IVRCL, IVR PRIME URBAN DEVELOPERS Suggested Reading Stock related Articles • DLF IPO overview • HDIL IPO Expected to be a Winner • Omaxe IPO A Good Investment – The India Street Analysis • BSE India launches New Real Estate Index • How do IPO’s fare in Secondary Market? • Video: Entertaining Look at India’s Economic History