Prestige Estates IPO Review and Analysis – Valuation Too High for a Bad Company (Low Margins,High Debt,Stagnant Sales) in a Bad Sector (Real Estate)

12 Oct, 2010
IPO,Real Estate and Construction

Prestige Estates is an Indian Real Estate Company with its operations focused in the southern part of India mainly in the techie city of Bangalore.The company is one on the long list of Realty Companies which have been waiting impatiently to raise money from the Stock Markets trying to pay off their debts.It is raising around Rs 1200 crores or $250mm .Oberoi Realty was a decent Realty Stock as far as the Sector goes which managed good subscription numbers in the last week.With “animal spirits” returning fueled by Bernanke’s Helicopter Policy expect more such shoddy Realty issues to hit the market.Note the Sector is an investor minefield with even well connected Fund Managers not trusting the financial statements published by these companies.With the Indian Stock Market already featuring a wide variety in terms of quality and quantity of Realty Stocks,Prestige Estates brings no difference and on analysis seems easy to avoid.Here are some features to this company

Summary

Prestige Estates is another low quality shady highly indebted Realty Company which should be strictly be avoided.It defies any simple analysis because of its convoluted structure and cross holdings.The Company Sales have been stagnant and Margins Low and it has high concentration risk as well.The Management inspires no confidence at all and is a typical example of the badly managed Real Estate Sector in India.Should be avoided at all costs by investors.Note 5 of the last 9 IPOs in India in the last month are giving losses to investors.This promises to be no different given the fundamentals.

Guest Post – Should Funds Hire Manic Depressives to Correct for “Optimism Bias”

10 Oct, 2010
Finance,Indian Markets,Real Estate and Construction

In the last 4-5 years, the real estate investment community seems to have been a victim of optimism bias. This is most exemplified in the severe under estimation of time/duration required for construction/operation of project investments. For fund managers who have made investments in major parts of Asia (China, Vietnam, India, Indonesia) in the last 4-5 years, under estimation of timelines is the one area in which they all concede to have erred. The experience has shown how easy it is to fall into the optimism bias trap and start believing that once the finance is secured and the contracts awarded, things just roll on in an automode. Following are some of interesting reasons (these are all true) by which projects have gone significantly delayed

It is believed that the only section of the population that isn’t susceptible to the optimism bias are people with major depressive disorder. Probably funds should consider hiring some of them.

Guest Post : Indian Shopping Mall Owners have Little Bargaining Power in an Oligopsonic Market

5 Oct, 2010
Real Estate and Construction

Organized retail industry in India is largely an oligopsonic market. (An oligopsony is a market form in which the number of buyers is small while the number of sellers in theory could be large. It contrasts with an oligopoly, where there are many buyers but just a few sellers. An oligopsony is a form of imperfect competition. One example of an oligopsony in the world economy is cocoa, where three firms (Cargill, Archer Daniels Midland, and Callebaut) buy the vast majority of world cocoa bean production, mostly from small farmers in third-world countries.)

Shopping centres in India have well defined product categories. These including the multiplex, the food court, the hypermarkets, the departmental stores (loosely referred to as anchors) and then the vanilla stores. In each of the anchor product categories, there are virtually 4-5 established players that all the retailers have to go to. This gives rise to an oligopsonic market with the retailers having the relationship power balance tilted in their favour. Also, with shopping centres being capital intensive (with large amount of debts) and the retailers working on negative working capital, the cash flow pressures are that much more on the shopping centre owners than the retailers. It gives retailers much more time to play hardball in their negotiations with the shopping centre owners.

Oberoi Realty IPO Analysis and Review- Indian Real Estate Stock not really compelling without being bad

5 Oct, 2010
IPO,Real Estate and Construction

Real Estate Companies have been trying to raise money from the primary markets for a long time.The depressed markets and the negative sentiment about the real estate sector had prevented that from happening.Realty companies are known for their “creative accouting” shenanigans and their financial statements are not even trusted by Fund Managers.However the Current Bull Run has sparked renewed interest in all sectors even depressed ones like Realty.This has presented a golden oppurtunity for Real Estate Companies to do IPOs.While the last 2 Real Estates issues Jaypee Infratech and Nitesh Estates were disasters,this ones looks better than the last 2 lemons.Oberio Realty has good profits,cash flows and zero debt.This makes their issue much better,however the Realty Sector is a dangerous one to play because of the corruption that pervades the entire industry.So you make an investment here not really knowing what you are getting into.Not a Warren Buffet Investment by a long shot.The upside is limited with huge amount of downsides in the form of unknowns.Here are some of the features of Oberio Realty

Infra BeES ETF Review and Analysis- Good though not Great Way to Invest in India’s Infrastructure Growth

5 Oct, 2010
Real Estate and Construction

India suffers from a lack of variety as well as depth in ETFs compared to developed markets such as USA.Only Benchmark Asset Management Company (AMC) has seriously invested in the ETF space and its NiftyBeES ETF which follows India’s Nifty Index is the most successful one so far.India’s Infrastructure Sector has attracted a lot of investor interest given the stupendous $500 Billion Investment planned over the next 5 years.This will be 2.5x the investment in the past 5 years and will help India’s crumbling ports,roads,railways,power and communications sectors to gear up to India’s 8-9% GDP growth.Recently EGShares launched INXX which also markets itself as a play on India’s Infrastructure Growth in the US Markets.However that ETF was found wanting in a lot of areas.The new InfraBeES ETF launched by Benchmark seems much better than INXX and has been launched in the Indian markets.This ETF is based on CNX Infrastructure Index and its 1 unit will be 1/10th of that Index.Here are some of the key features of this new ETF

TecPro Systems IPO Analysis – Construction Play on India’s Power Sector Growth at Reasonable Price

23 Sep, 2010
Coal,IPO,Real Estate and Construction

However Tecpro Systems differs from the other 2 IPOs in the sense that it is primarily focused on the Power Sector Space.It is a leader in the ash handling and material handling systems and is currently diversifying into becoming a turnkey provider in this segment.Like other infrastructure players it has seen amazing growth in the last 3 years at around 70%+.Its margins have come down and stabilized at around 7%.Cash Flow have been negative due the breakneck growth and the high WC requirements of the Construction Sector.The valuation does not seem expensive with the promoters diluting around 15% of the company.

Summary

This EPC company seems a good investment to me though not as good as VA Tech Wabag.The valuation at around 17x P/E is not very expensive though the sector concentration increase the risk for the company.However given the management quality,this company seems a better investment that other construction companies.The growth prospects of the Power Sector in India is huge and Tecpro seems well positioned in this space with partnerships with other major companies like Va Tech Wabag.Though there is some concentration risk,I think Tecpro seems a subscribe.

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