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Avoid Prestige Estates Projects

October 11, 2010

Prestige is one of the leading real estate development companies in Bangalore[75%] and Chennai [15%] with portfolio ranging from residential, commercial, hospitality and retail segments of the real estate industry.

The Prestige Group plans to issue fresh shares to the tune of 6.6–7 crore and raise Rs 1,200 Cr. Now without wasting each others time lets directly come to understand if it is worth investment.

Management – All in the Razack family [ So are many Indian Businesses, but we disapprove]

Quality of Work and Consumer Demand – Was of Very good Quality until one of the Towers in Prestige Shantiniketan Collapsed. Management has not offered any explanation on the same. Consumer Demand is expected to be Moderate in Bangalore as oversupply hangover still looms large on Bangalore.

Financials – This is the main reason why we Strongly Recommend you to Stay away from this IPO. Prestige has a debt-equity ratio of 2.6x which is very high. Prestige makes an operating margin of approximately 21% which is low compared to its peers. At post issue FY10 EPS of Rs 4.43, the P/E multiple will be 41.34x while that for Sobha Developers [Infosys’ primary Builder] is 28.61 and that for Purvankara is 15.98 thus making Prestige Estates VERY EXPENSIVE at the offer price. [Annualizing Q1 FY 2011 Earnings will give a still bad picture for EPS]

Prestige Estates wants to command a Market Cap of Rs 6,000 Cr at the upper band of the Issue Price while the m-cap of  Sobha Developers is languishing at Rs 3700 Cr and that of Purvankara is mere Rs 2,700 Cr. Even if you take Land Bank of 400 Acres of Prestige Estates,  Unitech with a much more massive Land Bank is just commanding a m-cap of Rs 23,000 Cr and thus it is hard to justify the Premium Prestige Estates management is demanding and hence Retail Investors can easily skip the IPO.

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