Monday, December 7, 2009

Godrej Properties' IPO - En-cashing Brand Equity

Godrej Properties proposes an initial public offer of 94 lakh shares of face value of Rs 10 each to raise around Rs 500 crore.
1) Godrej Properties intends to use Rs 278 crore of the issue proceeds for land acquisition and construction activity. Around Rs 172 crore have been allocated towards payment of loans and the balance to be used for meeting issue expenses and other corporate purposes.

2) Godrej Properties' subscribes to current trend:
Going ahead the company is planning to increase its presence in high volume affordable housing segment.

3) Godrej Properties enjoy large equity participation from private equity investors:
The company has large equity participation from private equity investors (upto 49%) in most of its large projects that are being executed through special purpose vehicles. While it spreads the risk, it also caps gains besides necessitating the need to seek partner's consent for every major decision.

4) Godrej Properties' - a dividend paying company :
The company's operating and net profit margins stand at 60% and 41% respectively due its presence in the premium segment.

5) Concerns - project execution, obviously!
The company has been in operations since the last 18 years but has developed just over 5 mn sq feet. This is less than one tenth of the area the company is looking at developing in near future.

6) Arguments, difficult to buy:
1) Considering the company's financials, the issue is priced on the higher side to its existing listed player like Peninsula Land (12x), which works on a similar asset light model.
Can you compare Peninsula Land and Godrej Properties? I can't!
2) Being a new entrant, the company must come at a discount to its peers to provide some upside to investors.
IPO for the benefit of investors, good idea!

To read more, please, visit IPO watch: Avoid Godrej Properties' for long term

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