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Keynote Capitals has come out with report on Kolte-Patil Developers IPO. They have recommended to subscribe to the issue with medium term view.

Kolte-Patil Developers, a real estate developer in India, has opened for subscription with an initial public offering (IPO) of 19,000,836 equity shares of Rs 10 each for cash at a price to be decided through a 100% book-building process.

The issue will close on November 22, 2007. The price band has been fixed between Rs 125 and Rs 145 per equity share.

Keynote Capitals report on Kolte-Patil Developers IPO

Recommendation - Subscribe with a medium term view

* Kolte-Patil Developers (KPDL) is a real estate developer, having presence mainly in the cities of Pune and Bangalore. It has a diversified project portfolio across residential properties, townships, commercial properties, IT parks etc. Has an experienced management team.
* Land reserves of around 54.5mn sq ft. Of this, approx. 39mn sq ft represents expected saleable area. However, land owned and land over which it has sole development rights aggregates to 57.7% of land bank, which is on the lower side vis-à-vis developers like Omaxe (76.2%) and IVR Prime Urban (73%) (source: respective RHPs).
* Its JVs provide it with the ability to capitalise on bigger opportunities, raise funding via the equity and debt routes and undertake large-scale development projects.
* On account of the increase in sales of IT premises in FY07, topline and bottomline grew at a CAGR of 174.1% and 486.8% during FY05-07 respectively on standalone basis.
* Diversification of its project portfolio and expansion into emerging local markets like Hyderabad, Chennai, Nasik, Goa, Nagpur, Aurangabad and Mysore will help derisk its business model.
* Its accounting practice of recognising revenues and expenses only in the period in which the project is completed leads to volatility of revenues.
* On the basis of its project implementation schedule, we estimate sales revenues to grow at 51.4% CAGR during FY07-09. We expect a modest 10.7% bottomline growth in FY08, followed by a 70.5% growth in FY09, as a number of projects are likely to get completed in that year. We expect a slight impact on EBITDA margin and accordingly expect net profit to grow at a 37.4% CAGR during FY07-09.
* Tax provision of 22.8% of PBT for FY07 is comparable with that of peers Parsvnath (24.7%), IVR Prime (34%) and DS Kulkarni (14%).
* Concentration of approx. 92% of land reserves in and around Pune is both a positive (due to the IT/BPO backed real estate boom in Pune) and a concern (over-exposure to a single city).
* The IPO valuation, at 11.8x FY08E and 6.9x FY09E earnings is in line with that of peers (Parsvnath Developers at 6.1x FY09E, D.S. Kulkarni Developers at 6.2x FY09E and Akruti Nirman at 11.1x FY09E). Our NPV valuation is in the broad range of Rs187 - 258 per share, translating into a price/NPV multiple of 0.56 - 0.77x.We recommend subscribing to the IPO with a medium term view.

Concerns

* Approx. 92% of the projects portfolio is concentrated in and around Pune.
* Revenue for long-term projects is recognized in the year in which the sale is completed. Therefore, there may be long lead time in the development of a project leading to earnings volatility.

Source: Moneycontrol.com