Indias Largest ever Public Issue by Indian Real Estate Giant DLF: Smudged by Valuation

If DLF adopts principles and practices of say someone like Infosys in the corporate governance and disclosure and investor servicing, I am sure, it will go a long way in not only getting a good rating for itself, but also changing or showing the way for the entire real estate sector. Real estate world over is a fairly large component of the index and I see an onerous responsibility on DLF to take that charge and make real estate a large component of Indian market capitalization also. Nilesh Shah, Chief Investment Officer, ICICI Prudential Life Insurance

Few Basic Questions

What is Initial Public Offer?
Why do companies go for an Initial Public Offer? What does DLF Stand for? Overpriced v/s underpriced? Window dressing of Financial Statements?

What is Initial Public Offer? Offer made to general public for the first time to purchase the shares. Why go for an Initial Public Offer? Capital/ Fund Raising through Equity route. Private company becomes a public limited company and gets listed on stock market (NSE, BSE, MCX) What does DLF Stand for? Delhi Leasing and Finance Limited Overpriced v/s underpriced? Overpriced - stock priced above its market price Underpriced - stock priced below its market value. Window dressing of Financial Statements? Refers to actions taken prior to issuing financial statements in order to improve the appearance of the Financial Statement

INTRODUCTION
The Global Story IPO markets across the globe were witnessing a great momentum as they raised huge amounts of capital from the primary markets in 2006 till the first quarter of 2007. The amount of capital raised was $246b through 1729 IPOs worldwide in 2006.

INTRODUCTION
Indian Story

India was no exception as there was:

Rapid economic growth, robust corporate profitability increasing investors interest

Backed by:
booming Indian economy, robust demand and rising property prices, The real estate sector had appreciated exorbitantly.

Delhi Leasing and Finance Limited

In 2007 - DLF Indias largest real estate player tapped the capital market to raise $ 2.24b by selling 10.27% of the company to become the largest public issue in India. Before April 2006 - Reliance Petrochemical $ 1.83b. After Oct 2010 Coal India Limited $ 3.5b. But it was felt that the issue was overpriced and the IPO timing was wrong. The issue also raised suspicion with respect to corporate governance practices followed by DLF and window dressing of its financial statements.

Booming Indian Real Estate Sector

Tremendous scope in real estate activity due to:

 increased GDP growth rate, which was estimated to be 10% by 2008

increased population, which was expected to touch 1,395 million by 2025 and 1,593 million by 2050.

 The increase in consumer spending There was a growing demand for led to the growth in the number of commercial space as India became malls in the Indian cities. the hub of IT and ITES activity

Indian Real Estate Sector

Real Estate

Residential

Commercial

Retail

Residential Sector
Key Drivers of housing Demand
Increased Disposable Income Easy Availability Of Finance
Rising Population

Dearth Of Housing

Households By Quality Of Dwellings

Dilapidated 5% Five rooms and above 6% Four rooms 6% No Exclusive Rooms 5%

Most Indians live in small housing units

One rooms 35%

Livable 44%

Good 51%

Three rooms 13%

Good

Livable

One rooms Four rooms

Two rooms 35% Two rooms Five rooms and above

Three rooms No Exclusive Rooms

Commercial Sector
Attractive Destination for:- IT, ITES and IT-Based Business Outsourcing(BPO). Classifying Indian cities Tier I - Delhi, Mumbai, Bangalore Tier II - Hyderabad, Pune, Chennai Tier III - Kolkata, Nagpur, Ahmadabad, Chandigarh, Indore, Kochi, Trivandrum, Mangalore, and about 30 more cities

Tier I
Mumbai Nariman point Delhi & NCR Connaught Place and surroundings Gurgaon, Noida, Greater Noida Bangalore Mahatma Gandhi Road Hosur Road, Whitefield and Airport Road

Central Business District (CBD) Secondary Business District (SBD)

Bandra, Kurla, Worli, Prabhadevi, Andheri, Malad

Retail Sector
2006 India was the Tenth Largest Retail Market in the World. Retail Turnover was $ 250 Billions in 2006, which stood at 3% in 2005 and was expected to reach at 1520% by 2015.