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Month: November 2006

Economy, Markets and Macro Views

SBI Ties up with MotiLal Oswal for Internet Trading.

1 min read

India’s Largest bank, the State Bank of India has tied-up with MotiLal Oswal Securities to provide online trading and investment solutions to SBI customers throughout India. SBI is the first state owned bank to venture into online trading.

Motilal Oswal already operates on a PAN India basis for retail trading and investment advise to small and high networth individual investors. Earlier this year, Motilal Oswal bought Cochin based Peninsular Capital Markets for Rs50 crores.

Immediately after this announcement, IL&FS announced that they have roped in another PSU bank for Online investment solutions – Oriental Bank of Commerce. Now OBC customers will have access to IL&FS online trading platform. IL&FS will be controlled by E-Trade the pioneers of Internet stock trading in the US.

With the entry of Reliance Money, existing players have woken up to survive competition by tieing up with PSU banks which have a large pool of customers.

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Equity Research

Oppenheimer Fund underwieght on India looks at Brazil

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American $220 Billion Oppenheimer Fund has cut India to underwieght due to expensive valuations and finds Brazil much more attractive.

Michael Metz of Oppenheimer said that, India is an exciting market but Brazil is the most attaractive emerging market. Michael further added that market is stretched too high and is vulnerable to a sudden and quick correction. He is worried at the speed the Indian markets have risen and is a major cause of concern.

Via[MC]

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India IPO Reviews and Updates

Sobha Developers Ltd IPO – Analysis and Recommendation.

2 min read

After having read the draft and final Red Herring prospectus of the company, here is DalalStreet.Biz detailed analysis and recommendation on Sobha Developers IPO.

Read – Sobha Developers initial Review -1
Read – Sobha Developers Business Line Review
Read – How to value Indian Real Estate Stocks ?

We expect the company’s bottomline to grow by 80% over last year at Rs 160 crores for FY07 and 50% for FY08 Rs 240 crores, yielding an EPS of Rs 22 for FY07 and Rs 32.8 for FY08 on fully diluted equity.

Sobha Developers Land bank: Cushman and Wakefield have valued the lands of Sobha Developers and at the lower end, constituting the sum of it’s Land Reserves [Rs 3,971 crores] + Land Arrangements [Rs 2, 306 crores] is Rs 6277 crores. NAV of Land bank at lower end is Rs 859 per equity share. On the higher end the Land Bank is valued at Rs 6937 crores which translates to Rs 950 per share.

Sobha gets full credit for its management which is visible by the number of contracts it fulfills for India’s top IT company, Infosys Technologies Ltd.

Sobha Developers pre-IPO private placement: Sobha did a private placement to Kotak Mahindra Private Equity Fund and Bennett & Coleman for 5.83 Lakh shares at Rs 617 per share on Oct-28-2006.

Sobha IPO Final Recommendation: Sobha’s discounting maybe based on Cash Flow more than Land Bank as it derives significant part of its income from contract works. Majority of the indicators are in favor of applying, we still advise caution and recommend that only investors who are willing to hold for a period of atleast 12 months should apply in the event of market crash. Your critics and comments are most welcome.

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Economy, Markets and Macro Views

Valuation of Indian Real Estate Stocks.

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I have had investors coming to me and asking about How to value Indian real estate stocks ? I decided to sit and study the sector and went through the following material.

1. Red Herring prospectus of DLF
2. Macquire Research Equity – India property – Nov 14th-2006
3. ShareKhan Sector Special – Nove-6th-2006
4. Sobha Developers Ltd – Final RHP Dated Nov-6th 2006.

In India, Real Estate Stocks can be valued by two methods – Value of the Land Bank or Sum of Parts Valuation [NAV] or by the routine cash flow discounting model.

Macquaire in its Research report dated 14-NOV-06, says, real estate stocks in India should not trade above their NAV premium. The real estate sector is expected to grow at CAGR of 60% betwen 2006-09. Macquaire’s model involves giving 40% weightage to Land Bank, 15% to debt, Equity and Interest costs, 25% for Management of projects and 20% for ROA and ROE. The report further states that, most Asian real estate stocks are valued on NAV. The model sounds reasonable.

Based on this model, Macquaire has arrived at NAV price of Rs 501 per share for Unitech Ltd and it is also the target price for the stock. The NAV for Mahindra Gesco developers Ltd is Rs1110 and the target price for the stock is Rs 945.

Also read Cushman & Wakefield reports about Land Value certifications of DLF and Sobha Developers.

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