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The big bang DLF IPO is here again. The price band is Rs. 500 – 550 per share and is offering 17.5 crore shares for subscription. At the upper end of the price band the issue hopes to garner Rs. 9625 crores!!!
And again my prediction is that it won’t be successful. I don’t believe in the real estate valuations and that I have stated many times earlier here. Today I will not talk about valuations. I believe, The size of the IPO is enough to kill itself.
Analysts are wrongly comparing DLF IPO to RPL IPO. They are trying to sell the point that if Indian market can absorb RPL IPO it can also absorb DLF IPO.
Let me argue to the contrary.
First – DLF is no Reliance
Reliance has a 30 year track record of rewarding its shareholders and Dhirubhai Ambani is known as father of equity cult in India. RPL’s parent company had a shareholder base of 35 lakh shareholders (It’s a record; every 4th investor in stock market is a shareholder of Reliance). RPL IPO saw a mad rush for opening D-Mat accounts among non investors. DLF can’t even hope for anything similar to that. DLF is not even TCS, ONGC or ICICI bank.
Second – It’s a Myth that Reliance Petroleum raised 8100 Crores from market through IPO
Fact: RPL has reserved 90 crores shares for RIL of the total 135 crore shares on offer. Which means the net size of the IPO was only 45 crore shares or Rs. 2700 crores.
Third – Not enough retail investors
I believe, everyone one will agree that if Retail part of the issue is not subscribed fully there is negligible chances of upside when the issue lists.
Now let’s do some number crunching.
DLF IPO size is Rs. 9625 crores at the upper end of the price band and is offering 17.5 crores shares for subscription. Around 30% of the issue would be reserved for retail investor. As per the SEBI guideline retail investor can invest maximum Rs. 1 Lac per IPO. Hence if all applicants apply for maximum permission number of shares it would require around 3 lakh applications. Generally less than 1/3 of the applicants apply for maximum permission number of shares. In case of RPL issue it was around 32%. Going by the weighted average method it would require at least 6 lakh retail applications to fully subscribe the retail part of the issue.
Yes, RPL IPO was oversubscribed by around 13.8 times. It meant that total money retail investors provided was Rs. 2980 cr. (16*13.8*45cr*30%). At 100% retail subscription, DLF is hoping to raise Rs. 2888 cr (9625*30%)!!!!
Fourth – Where is the upside?
Even if the IPO managed to escape through like the Cairn India IPO and manage to somehow show 100% subscription by retail investor’s what’s the point of investing? Retail investor would like to invest in an IPO only if he is hoping that the IPO would be oversubscribed many times over and hence would command premium in the secondary market on listing. As shown above it’s very difficult that the issue would be subscribed completely. Hence I don’t see any possible upside in the issue.
Fifth – bad marketing
The one year listing drama has done enough damage to the issue. It can’t command the same confidence it would have a year back. Secondly rumors like – Ambani brothers have joined hands to make sure that DLF IPO is not successful is doing no good for the IPO. I don’t buy the logic that Ambani brothers are interested in relative market cap of DLF with RIL market cap already 2.5 times and RelCom market Cap also more than that of proposed DLF market Capitalization. Such rumors can only harm the issue. Very few like to bet against the Ambani at least on the stock market. Again news of leading i-bank deserting the ship is not taken positively by the market.
Sixth (the most important) – Valuation
Boss, look at the top line and bottom line figures. Do you think public is idiot??
My recommendation to retail investors
Don’t even think of investing in this IPO. And those who are planning of investing in other companies in the secondary market in the next 10-15 days please hold on to your horses. Check out the fate of the DLF IPO & its impact and then enter the market.
And again my prediction is that it won’t be successful. I don’t believe in the real estate valuations and that I have stated many times earlier here. Today I will not talk about valuations. I believe, The size of the IPO is enough to kill itself.
Analysts are wrongly comparing DLF IPO to RPL IPO. They are trying to sell the point that if Indian market can absorb RPL IPO it can also absorb DLF IPO.
Let me argue to the contrary.
First – DLF is no Reliance
Reliance has a 30 year track record of rewarding its shareholders and Dhirubhai Ambani is known as father of equity cult in India. RPL’s parent company had a shareholder base of 35 lakh shareholders (It’s a record; every 4th investor in stock market is a shareholder of Reliance). RPL IPO saw a mad rush for opening D-Mat accounts among non investors. DLF can’t even hope for anything similar to that. DLF is not even TCS, ONGC or ICICI bank.
Second – It’s a Myth that Reliance Petroleum raised 8100 Crores from market through IPO
Fact: RPL has reserved 90 crores shares for RIL of the total 135 crore shares on offer. Which means the net size of the IPO was only 45 crore shares or Rs. 2700 crores.
Third – Not enough retail investors
I believe, everyone one will agree that if Retail part of the issue is not subscribed fully there is negligible chances of upside when the issue lists.
Now let’s do some number crunching.
DLF IPO size is Rs. 9625 crores at the upper end of the price band and is offering 17.5 crores shares for subscription. Around 30% of the issue would be reserved for retail investor. As per the SEBI guideline retail investor can invest maximum Rs. 1 Lac per IPO. Hence if all applicants apply for maximum permission number of shares it would require around 3 lakh applications. Generally less than 1/3 of the applicants apply for maximum permission number of shares. In case of RPL issue it was around 32%. Going by the weighted average method it would require at least 6 lakh retail applications to fully subscribe the retail part of the issue.
Yes, RPL IPO was oversubscribed by around 13.8 times. It meant that total money retail investors provided was Rs. 2980 cr. (16*13.8*45cr*30%). At 100% retail subscription, DLF is hoping to raise Rs. 2888 cr (9625*30%)!!!!
Fourth – Where is the upside?
Even if the IPO managed to escape through like the Cairn India IPO and manage to somehow show 100% subscription by retail investor’s what’s the point of investing? Retail investor would like to invest in an IPO only if he is hoping that the IPO would be oversubscribed many times over and hence would command premium in the secondary market on listing. As shown above it’s very difficult that the issue would be subscribed completely. Hence I don’t see any possible upside in the issue.
Fifth – bad marketing
The one year listing drama has done enough damage to the issue. It can’t command the same confidence it would have a year back. Secondly rumors like – Ambani brothers have joined hands to make sure that DLF IPO is not successful is doing no good for the IPO. I don’t buy the logic that Ambani brothers are interested in relative market cap of DLF with RIL market cap already 2.5 times and RelCom market Cap also more than that of proposed DLF market Capitalization. Such rumors can only harm the issue. Very few like to bet against the Ambani at least on the stock market. Again news of leading i-bank deserting the ship is not taken positively by the market.
Sixth (the most important) – Valuation
Boss, look at the top line and bottom line figures. Do you think public is idiot??
My recommendation to retail investors
Don’t even think of investing in this IPO. And those who are planning of investing in other companies in the secondary market in the next 10-15 days please hold on to your horses. Check out the fate of the DLF IPO & its impact and then enter the market.
7 comments:
Forget the reliance effect...
DLF is the leading real estate developer in INdia with quite a lineage...
DLF has proved its mettle in the real estate space. Have a look at Gurgaon.
Check out its land bank..
Forget where the market goes, DLF will give investors the return that they seek ( dude, wait for the listing)..size is not an issue.
DLF is not shrouded in mystery like the Ambanis ( we all know about this right)...
we all know how much ambanis are into the stock mkts and they might be the "leaders/manipulators" in the market but DLF will get its value...
I dont need to explain valuations, toplines and bottomlines, its for everyone to see..
remember this is not speculation..
I think comparing DLF with RPL is wrong. There is hardly any similarity between the two IPOs, but for the media hype.
As far as retail investors are concerned, I'd say not even 10% do as much research and analysis as done here. They go by market hype and what their brokers or 'stock mentors', if you will, recommend. The media news on DLF IPO has been confusing lately. That coupled with rumours about Real Estate sector cooling off might discourage the retail investors.
That being said, one thing is for sure, if a casual retail investor is bullish about Indian real estate, he/she will jump into this IPO. After all, this is the biggest real-estate IPO of India (correct me if I'm wrong here)...
Amit,
I agree that DLF is one of the best name in real estate and they have changed the face of Gurgaon. But dont forget in last one year land prices in Gurgaon has fallen by around 30%.
Secondly why a real estate company with such a lineage has total income of only 1242 cr and net profit of onlu 192 cr in year ending Mar'2006. (2007 figures are substantially higher due to related party transaction).
How come a company which is there for 50 yrs now has almost no profit and hopes to suddenly increase profits by a multiple of 25 (assuming it will trade at a PE multiple of 20 once it reaches a steady state).
What extraordinary thing the company proposes to do in the next 5 yrs which it has not done in the last 50?
Neeraj I agree with you that its wrong to compare it with RPL and also its almost sure that it will not be as successful as RPL...but its not a doomsay scenario as u have tried to build.....
"I believe, everyone one will agree that if Retail part of the issue is not subscribed fully there is negligible chances of upside when the issue lists." : The upside is always decided by institutional interest not by retail interest as most of retail put money for listing gains...retailers will chip in if theu see oversubscription on the institutional side,,,secondly there is still 11 days left...there is a gud possbility that there will be some pre ipo placement news coming ur way that will build on the issue
"Again news of leading i-bank deserting the ship is not taken positively by the market." : Very few on earth knows it or cares abt it...also the left out are also pretty gud known names...
"I don’t buy the logic that Ambani brothers are interested in relative market cap of DLF with RIL market cap already 2.5 times and RelCom market Cap also more than that of proposed DLF market Capitalization."...the reason may not be as simple as a ego issue or something...u may not agree with the logic but any business man will always like the supplier side to weaken...and DLF is a supplier of land to retail market and with the land bank that dlf owns in north india, it can decide which way the real estate industry atleast in north india will go..any downfall in land / commercial prices helps the retail industry more than anybody else..
Regarding land valuation / profits of company etc....firstly land prices have not fallen as much as u think,,,also just keep in mind that ipo also has falen from 13000 cr to 9000 cr ..almsot 30% ..so it takes that account....
also abt profits...dlf as of last year didnt make any huge book profits...did u checked how many people get a salary of over a crore..do u honestly think that a 100% promoter controlled company will ever give its employees a crore salary when it is not making any...the difference in its book profits and actual profits is just same difference in the stamp paper value of the property and the market value of the property...so dont go by book value either..so u will see huge gains suddenly entering into books in next few years
Most importantly it is already at a premium of 40-50 bucks in the grey mkt (11 days before opening of IPO),,the best indicator...and that means a mojority think the gains will be much more..only then the person will pay u assured return
size yes thats large but its not as large as u are making it to be...as urself stated cairns with a 6000 crores issue got through...so DLF with the brand name it has can definitely have a gud time...
my only concern is market may see gud some fall during the ipo opening period and that wil be thnx to ur corporate friends,rather than liquidity crunch...that may tilt the scales completely in ur favour
~ajay
I don't agree with you at all. FIIs understand these things better and the issue will sail through. As far as valuations are concerned the issue is underpriced and there is sufficient upside from here. This is a company with 70% of its land bank in metros and is into many other things and Unitech( the largest listed company in the sector) is at best a poor cousin.
Dear Sir,
Kindly note these points:
1. DLF is having a good land bank that too in good location.
2. DLF have very good finance sources outside india.
3. DLF is benchmark for realestate industry in india and most of the indian ...... money is into this right now.
4. Retail investor are influenced by the market sentiments not the institutions.
5. retails portion may not subscribe but see for the other quotats.
6. You cannot even deny that foreign money is waiting for indian real estate
The verdict is out.....
QIB 5.12x; Retail- 0.97x and so on.. overall 3.5x
What says gut feeling now....
well considering the size of the issue ( m making no comparisiion to the RPL issue- there isn't any).. the issue is a success in terms of the oversubscription.. 3.5x means roughly $3.5bn... that i guess is fairly large to say DLF issue was successful...
The success of any issue is gauged by QIB and its quality.. HSBC- $650mn; Dubai Invst corp- $150mn; Aberdeen, TPG Axon etc all subscribing more than $100mn.. in fact anil and mukesh too have subscribed $100mn each.. what more does one have to say abt an issue of this stature... Phew!!
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