One of the biggies to hit the IPO market, Emaar MGF Land Limited (EMLL) promoters will be watching the issue carefully. They have already reduced the offer price in the wake of weak investor sentiment and this does not really ring well. Many look at the earlier offer and the subsequent reduction of price as extremely opportunistic and not being based on fair valuations.
The company plans to raise Rs 5,540 – Rs 6,460 crore through an IPO of 10.26 crore equity shares, having a face value of Rs 10 each, at a price band of Rs 540 – Rs 630. Issue proceeds will be used for the repayment of loans, and part payment towards the acquisition of land and land development rights and related approvals for ongoing and planned projects.
Strong gains
EMLL was incorporated in the year 2005 as a joint venture between Emaar Properties PJSC of Dubai and MGF Development Limited of India, a North India-based real estate developer. The overseas partner has considerable global technical expertise in real estate and MGF understands the local flavour. However, they have not executed any project in India till date.
It has land reserves in 26 locations across India, admeasuring 13,024 acres with an estimated developable area of 588-mn square feet. And this should be viewed as a plus, as operations are wide spread and therefore would reduce the risk the company could face from regional price swings.
The fact that EMLL has a tie-up with six international hotel chains for development of its hospitality segment, bodes well for the company. Some of their tie-ups include the InterContinental Hotel group, Holiday Inn, Marriott, Hyatt, and Four Seasons. These are world-class players who are choosy about whom they partner with, hence this factor should enthuse investors. Also, the fact that around 89% of land value is fully paid by the company, should add to it.
Some pains
Another fact that 80% of the land reserve is notified as agricultural land, dulls the cheer. Changing this notification could impact project plans and the company could also run into some resistance here. Now, in a view to beat the land ceiling rules, EMLL has formed 400 subsidiary companies. This makes the organisational structure rather complex and is a dampener.
Analysts reckon that Unitech, its closest peer, has a land reserve of 650 million square feet saleable area and the enterprise value to saleable area (EV/saleable area) ratio works out to Rs 1,056 per square feet. For Sobha Developers the EV/saleable it is Rs 521 per square feet. On the other hand, the EV/saleable Area for Emaar MGF at the upper price band of Rs 630 per share is pegged at Rs 1,170 per square feet. Thus, the price is seen to be on the higher side.
On the date of opening of the issue, around 16% bids were received, and most were on the lower end of the price band, report agencies.