Puravankara Projects is a South-India-based real estate development company. The company is primarily into developing residential and commercial properties. It has entered the capital market with an offering of 214,67,610 shares. Considering the land bank parameter, the company is more Bangalore-centric; it has a land bank of 70.66% land bank in Bangalore.

It has inked a 49:51 joint venture with Keppel Investment Mauritius, a subsidiary of Singapore-based Keppel Land. Keppel Land is a subsidiary of Keppel Corporation, a company in which Temasek Holdings, an investment arm of the Singapore government, has a majority stake. The company formed under the JV is termed as Keppel Purvankara Development Pvt Ltd.

Plans

Of around Rs 1,127 crore, which the company intends to put up, it intends to use around Rs 419 crore for a repayment of loans. It also plans to use around Rs 315 crore for land acquisitions. The company has identified around x million sq ft in and around Chennai, which amounts to around Rs 350 crore. The real estate developer has a total land bank of around 116.24 million sq ft, of which on around 13.99 million sq ft there are one commercial and 14 residential projects going on. The company is jointly executing a residential project with the JV company Keppel Purvankara Development Private Ltd. Of the company?s total 116.24 million sq ft land bank, 7.79 million sq ft is owned by the JV.

Investonomics

Considering the premium valuation real estate sector stocks are enjoying after listing, it seems that the reality in the sector is blurring and all that one can see happening is unreal. And in this intense investment activity, a company like Purvankara Projects is in good steed to milk the current favourite of the markets, real estate, in the short-term.

However, while investing there are lots of factors, which need to be taken into account. Firstly, sustainability of the rapid spurt in the PAT and NPM, both of which have increased at a CAGR of around 112% and 19.20% for the last four financial years. More so, with most projects having a gestation period of more than two and half years, the passing on of its realisation to the investors will take far longer.

Secondly, the ?interest capitalised? method employed by the company, which has ensured postponement of payment of interest to next year and this, may lead to a strain on profit in future.

More specifically, investors must be aware of this fact. Not to mention the presence of the promoters of the company in the same business, which may result in conflict of interest.

Valuation

On the valuation front, the company, considering the post-issue equity on a fully diluted basis, quotes a P/E of around 81(x) and 85(x) at the lower and the higher end of the price band respectively.

In comparison with peers like the South-based Sobha Developers, Parsvanath Developers, and Ansal properties have a P/E of around 41.3(x), 8.1(x), and 25.1(x) respectively, the scrip is high-priced. A lot depends on the project execution capabilities of the company in the near future and investors need to have a ?wait and watch? strategy employed for the stock.