Despite improved market conditions, clouds of uncertainty still hover over initial public offers from real estate companies. Merchant bankers say that most companies will think of tapping the capital market only post-Diwali, and that too, if they see an uptick in sales and an improvement in the business environment.
The realty industry typically sees subdued activity in the monsoon and hopes for a revival in demand during the festive season.
?Merchant bankers don?t want to be a part of realty issues, currently as many of these companies are sitting on unsold stock (properties). Sales are likely to pick up only post-Diwali,? said Dara Kalyaniwala, vice-president, investment banking, PL Capital Markets.
Amit Goenka, national director, capital transactions, Knight Frank India, says : ?No underwriting is happening at the pre-IPO level currently.? Pre-IPO activity is critical as it indicates the level of interest and valuations for an issue before the actual public offering.
Some realty companies have tempered their expectations of how much they want to raise from IPOs.
Lodha Developers, which had earlier planned to raise Rs 3,000 crore, has brought down the figure to Rs 2,500 crore, while Emaar MGF Land has brought down its estimated issue size from Rs 3,850 crore to Rs 2,000 crore. Market observers say Oberoi Realty may also reduce its issue size.
Prime Database analysis suggests that as many as 12 realty companies have got Sebi approval for the IPOs and are still waiting to tap the market. The issues are worth about Rs 11,000 crore. In addition, nother 8 companies are awaiting Sebi approval for issues worth Rs 8,114 crore.
?Investors have become discerning about the quality of issues. They want to gauge the track record of actual delivery. Earlier, valuations were purely decided based on the land bank possessed by the company,? said Gyan Mohan, executive VP & head, investment banking, IDBI Capital, adding that many companies depend on leverage to build up their assets. Valuations have been a bone of contention for many real estate players.
Institutional interest is also a challenge ?The success of these issues largely depends on getting the QIB(Qualified Institutional Buyers) portion subscribed,? said Mohan.
?And the key issue for the institutional investors is how much of the business is profitable and whether cash is flowing in.?
Experts feel some developers may even abort their IPO plans, if sales don?t pick up during the festive season. ?Unless we see a correction in property prices coupled with good discounts, sales will not pick up drastically,? said Goenka of Knight Frank India. He added that there might even be a drop in sales if developers don?t get their pricing strategy right.