Nitesh Estates IPO

Though Nitesh Estates' issue is expensive, brave-hearts can take the plunge factoring in the promoter's strength

 

 

NITESH Estates, incorporated in 2004, is in development of residential projects in Bengaluru. Its target customers, in the initial years, were the high-income IT executives; but now the company has shifted focus to middle-income projects in the range of Rs 25-60 lakh.

   A first generation company, Nitesh Estates is tapping the primary market with a fresh issue of 7.2 to 7.5 crore shares to raise Rs 405 crore. Out of this, Rs 21 crore will be used for acquisition of joint development rights, Rs 303 crore for funding subsidiaries' requirement and Rs 35 crore for debt funding of the parent company. Balance will be used for general corporate expenses. The issue represents around 50.8% of the post-issue equity capital of the company at the upper price band.

BUSINESS:

Since inception, the company has developed three residential projects totalling 0.56 million square feet (mn sq ft) of saleable area. The company also develops retail and commercial projects and is expanding in Chennai, Goa and Hyderabad. Nitesh Estates has also forayed into the hospitality sector and is developing its first project, the first Ritz-Carlton brand hotel in India, in Bengaluru. It holds 20.7% stake in the project with Citi Property Investors holding 74% share in the subsidiary. Its other financial investors include AMIF I, a PE fund of Och-Ziff Capital that holds 14.4% of the pre-issue equity share capital in the company. HDFC asset management company, holds 10.1% stake in another subsidiary of Nitesh.

   It has also received Rs 60 crore under its anchor investor category from the likes of HDFC MF, SBI MF, Nomura Japan and Halbis Capital. As of March 2010, the company has around 5.31 m sq ft ongoing projects and 2.7 m sq ft of developable area. It has about 11 m sq ft developable are, taking the total land bank to 19 m sq ft, which will be developed over the next four to five years. About 73% of its portfolio is earmarked for residential development, thus providing a regular revenue visibility.

FINANCIALS:

In the past three years, the company's net sales jumped three-and-ahalf times to reach Rs 87 crore in FY09. Net profit grew 10 times during the same time to touch 2.8 crore for the period ended FY09. It launched two projects in January and March 2010 that will be recognised in the coming quarters. The company will continue to hold its retail asset and a project of similar scale could fetch an annual income of about Rs 35 crore. It has a net cash of Rs 200 crore on its books.

   Going ahead, the company is expected to operate at 25% gross margins converting to 15% net margins. Being a fairly young company, it has a pipeline of some good projects; however, its execution skills do not match its ambition.

VALUATIONS:

The company closed the nine months to December 2009 in red on a consolidated basis. It is asking for a market valuation of Rs 797 crore at the upper price band and is valued at 1.5x to 1.6 times its price to book value making it an expensive bet. A close comparison will be with Peninsula Land that operates on similar joint development model in prime market of Mumbai. For risk-averse investors, the stock is expensive and they must stay away from it. However, those brave hearts that wish to ride on the promoter's strength can risk their money.