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  • IPO Review February 1, 2010Rating matrix DB Realty LimitedRating : Avoid Price band Rs 468 – Rs 486Issue Details Another Mumbai-based player…Issue opens January 29, 2010Issue closes February 02, 2010 Incorporated in 2007, DB Realty Limited (DB Realty) is a real estate developer focused in and around Mumbai. DB Realty has a land bank ofIssue size (Rs crore) Rs. 1500 crore 61 million (mn) sq ft (Ongoing projects – 19.5 mn sq ft, forthcoming– 19.3No of shares on offer 3.1-3.2crore mn sq ft and upcoming– 22.2 mn sq ft). Approximately 85% of the land - Fresh Issue to the public 3.1-3.2 crore bank is spread in and around Mumbai. - Employee Reservation NA Land bank spread in MumbaiQIB ( 60% ) 1.85-1.92crore As on December 31, 2009 DB Realty has a land bank of 61 mn sq ftNon Institutional ( 10% ) 0.31-0.32 crore (Ongoing projects – 19.5 mn sq ft, forthcoming – 19.3 mn sq ft andRetail ( 30% ) 0.93-0.96 crore upcoming– 22.2 mn sq ft). Out of 61 mn sq ft, ~85% of the land bank is spread in and around Mumbai in places such as Goregaon, MiraMinimum lot size 14 Road, Dahisar, Kandivali, BKC and Andheri. Additionally, ~7% of theMarket cap (Post issue) (Rs. Crore) 11,385-11,765 land bank is spread in the southern part of the Mumbai where the realisations are pretty high given the lack of scarcity of land in these areas.Objects of the IssueParticulars Amount (Rs. Crore) Parentage advantageConstruction & development cost for Rs. 1044.7 crore The families of the promoters have been in the real estate and relatedcertain of the projects businesses for decades and have developed several large projects inPre-payment of loan from IDFC Rs. 80 crore and around Mumbai.General corporate purposes & issue Rs.375.3crore Concerns ISIEmergingMarketsPDF in-pwcdel from 117.198.120.163 on 2011-08-15 03:39:26 EDT. DownloadPDF.related expenses Crisil has assigned the IPO grade of 2/5 indicating that the fundamentals of the IPO are below average relative to the other listed equity securities in IndiaFact Sheet Pre-Issue Post-Issue DB Realty has invested Rs 705.1 crore in unlisted entities related toNo of shares (In crore) 21.1 24.2-24.3 DB Realty. It has provided corporate guarantees, aggregating to ~Rs 2519 crore, in connection with certain debt facilities availed by suchPromoters (%) 73.7 64.0-64.3 entities, which are in excess of DB Realty’s net worthOthers (%) 0.0 0.0Public (%) 26.3 35.7-36.0 ValuationsFinancial Summary DB Realty is available at 3.9x P/BV at the lower price band of Rs 468 perRs. Crore FY08 FY09 H1 FY10 share and 4.0x P/BV at the higher price band of Rs 486 per share. While,Sales 0.0 464.4 39.4 we like the quality of the land bank, we see better opportunities availableEBITDA -12.8 225.8 146.8 in the secondary markets at these levels of valuation. Hence, we recommend investors AVOID the issue.PAT -23.6 143.8 64.1EPS ( post issue) -1.0 6.0 2.7 Exhibit 1: Key FinancialsEBITDA margin (%) NA 48.6 37.2 Particular FY08 FY09 H1FY10PAT margin (%) NA 31.0 16.2 Net sales 0.0 464.4 394.4 EBITDA -12.8 225.8 146.8 Margin (%) 48.6 37.2Analyst’s name Reported PAT -23.6 143.8 64.1 Deepak Purswani Margin (%) 31.0 16.2 deepak.purswani@icicisecurities.com Post Issue Diluted EPS (Rs) -1.0 6.0 2.7 RoE(%) 18.7 11.5* RoCE(%) 10.2 11.1* Source: Company, ICICIdirect.com Research *Annualised ICICIdirect.com | Equity Research Downloaded by in-pwcdel from 117.198.120.163 at 2011-08-15 03:39:26 EDT. ISI Emerging Markets. Unauthorized Distribution Prohibited.
  • Company Background Incorporated in 2007, DB Realty is a real estate development company that is focused on residential, commercials, retail and other projects such as mass housing and cluster redevelopment in and around Mumbai. The company is jointly promoted by Vinod Goenka and Shahid Balwa, whose families have been in the real estate business for more than 25 and 95 years, respectively. As on December 31, 2009, the promoters and promoter group companies have collectively developed ~15.9 mn sq ft of real estate development. This includes residential projects – developable area of 15.3 mn sq ft and commercial & retail projects with developable area of 0.6 mn sq ft. In terms of land bank, the company currently has a land bank of 61 mn sq ft, which is largely focused on the residential vertical in the Mumbai real estate market. As on December 31, 2009, DB Realty has a land bank of 61 mn sq ft (Ongoing project – 19.5 mn sq ft, forthcoming – 19.3 mn sq ft and upcoming– 22.2 mn sq ft). Exhibit 2: Break-up of saleable are Ongoing Forthcoming Upcoming Total Mn sq ft % Mn sq ft % Mn sq ft % Mn sq ft %Land bank of 61 mn sq ft (Ongoing -19.6 mn sq ft; Residential 6.9 35.7 12.9 66.8 20.8 93.5 40.6 66.6forthcoming – 19.3 mn sq ft and upcoming -22.2 mn Commercial 1.6 8.2 0.2 1.0 0.4 1.6 2.1 3.5sq ft) Retail 0.0 0.0 0.0 0.0 0.4 1.6 0.4 0.6 Mass Housing & cluster Redevelopement 10.9 56.1 6.2 32.2 0.7 3.3 17.9 29.3 Total 19.5 100.0 19.3 100.0 22.2 100.0 61.0 100.0 Source: Company, ICICIdirect.com Research Exhibit 3: Details of ongoing projects ISIEmergingMarketsPDF in-pwcdel from 117.198.120.163 on 2011-08-15 03:39:26 EDT. DownloadPDF. Total Saleable Expected estimated Cost Area (in completion cost (Rs incurred Project Name Type mn sq ft) Start date date cr) (Rs cr) Orchid Zone, Dahisar Residential 1.58 Aug-09 Sep-12 625 193 Orchid Zone, Dahisar Retail 0.03 Aug-09 Sep-12 Orchid Woods,Goregaon Residential 0.88 Feb-07 Jun-11 542 404 Orchid Heights, Jacob Circle Residential 0.62 Nov-09 Mar-13 506 123 Orchid Suburbia, Kandivali Residential 0.49 Jan-09 Dec-11 471 280 Total 97.5% of the ongoing projects are in Mumbai Mass Housing - Mahul Nagar, Mahul,Mumabi TDR 8.70 Mar-07 Mar-11 854 643 Orchid Hills,Chandivali,Andheri Residential 0.52 Mar-09 Mar-13 878 50 Orchid Hills,Chandivali,Andheri TDR 2.24 Mar-09 Mar-13 Ascot Centre, Andheri Commercial 0.34 Feb-07 Dec-12 155 10 Orchid Turf View, Mahalaxmi Residential 1.48 Jan-10 Mar-13 675 74 Orchid Corporate Park, Andheri Commercial 1.25 Jan-10 Nov-12 472 101 Residential & Orchid Centre, Yerawada, Pune Retail 0.47 Jan-09 Jun-12 135 4 Orchid Crown, Dadar Residential 0.90 Jan-10 Dec-12 567 7 Total 19.51 5882 1888 Source: Company, ICICIdirect.com Research ICICIdirect.com | Equity Research Downloaded by in-pwcdel from 117.198.120.163 at 2011-08-15 03:39:26 EDT. ISI Emerging Markets. Unauthorized Distribution Prohibited. Page 2
  • Exhibit 4: Details about forthcoming project Total Saleable Expected estimated Cost Area (in completion cost (Rs incurred Project Name Type mn sq ft) Start date date cr) (Rs cr) Orchid Hills Park,Goregaon Residential 1.67 Aug-10 Jul-13 683 2 Orchid Hills Park,Goregaon TDR 6.21 Aug-10 Jul-13 Orchid Garden, Dahisar Residential 2.19 Jul-10 Jun-12 461 15Total 65.2% of forthcoming project are in Mumbai Orchid West View, Malad Residential 0.66 Apr-10 Mar-13 260 15 Orchid View, Mumbai Central Residential 0.69 Apr-10 Mar-13 476 16 Orchid Park, Bacchuwadi Residential 0.64 Sep-10 Mar-13 267 27 Orchid Skyz, Byculla Residential 0.30 Sep-10 Aug-13 244 1 DB Tower, BKC Residential 0.01 Apr-10 Mar-13 582 309 DB Tower, BKC Commercial 0.19 Apr-10 Mar-13 Orchid Town, Pimpari Residential 6.72 Aug-09 Sep-12 2137 53 Total 19.3 5110 438 Source: Company, ICICIdirect.com Research Exhibit 5: Details about upcoming project Total Saleable Expected estimated Cost Area (in completion cost (Rs incurred Project Name Type mn sq ft) Start date date cr) (Rs cr) Orchid Acre, Mira Road Residential 17.93 Apr-10 Dec-13 2910 105Total 92.4% of upcoming projects are in Mumbai Orchid Enclave II, Mumbai Central Residential 0.69 Jul-10 Dec-12 272 20 Orchid Apartments, Mankhurd Residential 0.43 Mar-11 Feb-15 447 560 Orchid Apartments, Mankhurd TDR 0.73 Mar-11 Feb-15 Orchid Splendour, Byculla Residential 0.42 Apr-10 Mar-13 170 21 Orchid Central, Mumbai Central Residential 0.34 Jul-10 Dec-12 121 16 Orchid Lawn, Sangamwadi, Pune Residential 0.99 Jan-11 Dec-16 951 39 Orchid Lawn, Sangamwadi, Pune Commercial 0.35 Jan-11 Dec-16 Orchid Lawn, Sangamwadi, Pune Retail 0.35 Jan-11 Dec-16 Total 22.2 4,869 760 Source: Company, ICICIdirect.com Research ISIEmergingMarketsPDF in-pwcdel from 117.198.120.163 on 2011-08-15 03:39:26 EDT. DownloadPDF. ICICIdirect.com | Equity Research Page 3
  • Investment Rationale Land bank spread in island city of Mumbai DB Realty is largely focused on the Mumbai real estate market. Out of 61 mn sq ft, 85% of the total land is spread in Mumbai. The company is looking to focus only on the Mumbai real estate market. The land bank is spread in areas such as Goregaon, Mira Road, Dahisar, Kandivali and BKC & Andheri. Importantly, approximately 7% of the total land bank is spread in southern parts of Mumbai where the realisations are pretty high given the scarcity of the land. Exhibit 6: Area wise break-up of land bank (%) 120.0 97.5 100.0 92.4 85.3 80.0 65.2 60.0 34.8 40.0 14.7 20.0 7.6 2.5 0.0 Ongoing Forthcoming Upcoming Total Mumbai Pune Source: Company, ICICIdirect.com Research ISIEmergingMarketsPDF in-pwcdel from 117.198.120.163 on 2011-08-15 03:39:26 to experience & capabilities Strong parentage providing access EDT. DownloadPDF.The promoter’s family has been in the real estate DB Realty benefits from its promoter’s background in the real estatebusiness for a long time development industry. The families of Vinod K Goenka and Shahid Balwa have been in the real estate and related businesses for more than 25 years and 95 years, respectively, and have developed several large projects in and around Mumbai. May participate in redevelopment space in MumbaiMay enter into block redevelopment in Mumbai DB Realty may look for redevelopment space in southern parts of Mumbai in future for block redevelopment under DCR 33(9). These projects typically have FSI as high as 4x while realisations are pretty high in southern parts of Mumbai. However, these projects are long gestation projects with initial two years involved in negotiations with tenants and getting regulatory approvals. ICICIdirect.com | Equity Research Downloaded by in-pwcdel from 117.198.120.163 at 2011-08-15 03:39:26 EDT. ISI Emerging Markets. Unauthorized Distribution Prohibited. Page 4
  • Key concerns Crisil rates IPO grade of 2/5 Crisil has assigned the IPO a grade of 2/5. This grade indicates that the fundamentals of the IPO are below average relative to other listed equity securities in India. The grading reflects the fact that DB Realty lacks operating history in real estate development. Corporate guarantees provided for subsidiariesDB Realty has provided corporate guarantees of As on September 30,2009, DB Realty has invested Rs 705.1 crore insubsidiaries, which are in excess of its net worth unlisted entities related to DB Realty and provided corporate guarantees, aggregating to ~Rs 2519 crore, in connection with certain debt facilities availed by such entities, which are in excess of DB Realty’s net worth. These corporate guarantees constitute about 68.7% of the total debt sanctioned to such entities. Higher concentration on Mumbai real estate market DB Realty’s land bank is highly concentrated in and around Mumbai. In the current land bank of 61 mn sq ft, ~85% of the land bank is spread in and around Mumbai. Any slowdown in the Mumbai real estate market could impact its financial significantly. ISIEmergingMarketsPDF in-pwcdel from 117.198.120.163 on 2011-08-15 03:39:26 EDT. DownloadPDF. ICICIdirect.com | Equity Research Downloaded by in-pwcdel from 117.198.120.163 at 2011-08-15 03:39:26 EDT. ISI Emerging Markets. Unauthorized Distribution Prohibited. Page 5
  • Financials Financials impacted by recent slowdown Since the company was incorporated in 2007, there is limited financial history of the company. In FY09, the company’s revenues stood at Rs 464.4 crore and net profit stood at Rs 143.8 crore. In H1FY10, the company’s revenues stood at Rs 394.4 crore while net profit stood at Rs 64.1 crore. ValuationsAvoid the issue. There are better opportunities DB Realty is available at 3.9x P/BV at the lower price band of Rs 468 peravailable in the secondary market share and 4.0x P/BV at the higher price band of Rs 486 per share. While we like the quality of the land bank, we see better opportunities available in the secondary markets at these levels of valuation. Hence, we recommend investors AVOID the issue. Exhibit 7: Valuation table Mkt cap (Rs Land bank ( cr) EV (Rs cr) mn sq ft) Mkt cap/ sq ft EV/sq ft P/BV DB Realty @Rs468 11,385 12,072 61 1,866 1,979 3.9 DB Realty @Rs486 11,765 12,452 61 1,929 2,041 4.0 DLF 56,632 71,012 430 1,317 1,651 2.2 Unitech 17,732 22,975 328* 541 700 1.7 HDIL 11,433 14,574 196 582 742 1.7 Godrej Properties 3,337 3,608 50 667 722 4.3 Source: Company, ICICIdirect.com Research ISIEmergingMarketsPDF in-pwcdel from 117.198.120.163 on 2011-08-15 03:39:26 EDT. DownloadPDF.ICICIdirect.com | Equity Research Downloaded by in-pwcdel from 117.198.120.163 at 2011-08-15 03:39:26 EDT. ISI Emerging Markets. Unauthorized Distribution Prohibited. Page 6
  • Financial SummaryExhibit 1: Profit and Loss Account Particular FY08 FY09 H1FY10 Net sales 0.0 464.4 394.4 Total expenditure 12.8 238.6 247.6 EBITDA -12.8 225.8 146.8 Other income 6.3 6.8 4.8 Interest 15.4 74.7 70.1 Depreciation 1.6 7.4 4.6 Profit Before Tax -23.5 150.5 77.0 Taxes 0.1 6.7 12.9 PAT -23.6 143.8 64.1 OPM (%) 48.6 37.2 NPM (%) 31.0 16.2 Outstanding shares 0.9 0.9 21.1 EPS (Rs) -25.2 157.7 3.0 Diluted EPS (post issue) -1.0 6.0 2.7Source: CompanyExhibit 2: Balance Sheet Particular FY08 FY09 H1FY10 Share capital 9.4 9.1 211.2 Reserves & Surplus 718.6 801.5 1200.3 Net Worth 728.0 810.6 1411.6 Minority Interest 55.4 55.3 55.4 ISIEmergingMarketsPDF in-pwcdel from 117.198.120.163 on 520.8 Secured Loans 222.7 2011-08-15536.1 03:39:26 EDT. DownloadPDF. Unsecured Loans 380.4 714.9 215.3 Deferred Tax Liability 0.0 0.4 0.4 Current Liabilities & provisions 438.2 342.1 452.2 Total Liabilities 1824.6 2444.1 2670.8 Net Block 14.3 20.8 18.5 Capital WIP 0.5 1.5 1.0 Investment 178.5 0.2 25.4 Inventories 533.8 1057.8 1172.6 Sundry Debtors 9.1 42.6 86.6 Cash & bank balance 103.7 76.9 64.3 Loans & Advances 984.8 1244.2 1302.1 Other current assets 0.0 0.0 0.4 Total assets 1824.6 2444.1 2670.8Source: CompanyICICIdirect.com | Equity Research Downloaded by in-pwcdel from 117.198.120.163 at 2011-08-15 03:39:26 EDT. ISI Emerging Markets. Unauthorized Distribution Prohibited. Page 7
  • RATING RATIONALEICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assignsratings to its stocks according to their notional target price vs. current market price and then categorises themas Strong Buy, Buy, Add, Reduce and Sell. The performance horizon is two years unless specified and thenotional target price is defined as the analysts valuation for a stock.Strong Buy: 20% or more;Buy: Between 10% and 20%;Add: Up to 10%;Reduce: Up to -10%Sell: -10% or more; Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 7th Floor , Akruti Centre Point, MIDC Main Road, Marol Naka, Andheri (East) Mumbai – 400 093 research@icicidirect.comANALYST CERTIFICATIONWe /I, Deepak Purswani PGDBM research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our personalviews about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) inthis report. Analysts arent registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc.Disclosures:ICICI Securities Limited (ICICI Securities) and its affiliates are a full-service, integrated investment banking,2011-08-15 03:39:26 EDT. and financing group. We along with affiliates are leading ISIEmergingMarketsPDF in-pwcdel from 117.198.120.163 on investment management and brokerage DownloadPDF.underwriter of securities and participate in virtually all securities trading markets in India. We and our affiliates have investment banking and other business relationship with a significant percentage ofcompanies covered by our Investment Research Department. Our research professionals provide important input into our investment banking and other business selection processes. ICICI Securitiesgenerally prohibits its analysts, persons reporting to analysts and their dependent family members from maintaining a financial interest in the securities or derivatives of any companies that the analystscover.The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential andmeant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, withoutprior written consent of ICICI Securities. While we would endeavour to update the information herein on reasonable basis, ICICI Securities, its subsidiaries and associated companies, their directors andemployees (“ICICI Securities and affiliates”) are under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securitiesfrom doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securitiespolicies, in circumstances where ICICI Securities is acting in an advisory capacity to this company, or in certain other circumstances.This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. Thisreport and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financialinstruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of theirreceiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specificcircumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investmentobjectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluatethe investment risks. The value and return of investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities and affiliates accept no liabilities for anyloss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand therisks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject tochange without notice.ICICI Securities and its affiliates might have managed or co-managed a public offering for the subject company in the preceding twelve months. ICICI Securities and affiliates might have receivedcompensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of public offerings, corporate finance, investmentbanking or other advisory services in a merger or specific transaction. ICICI Securities and affiliates expect to receive compensation from the companies mentioned in the report within a period of threemonths following the date of publication of the research report for services in respect of public offerings, corporate finance, investment banking or other advisory services in a merger or specifictransaction. It is confirmed that Deepak Purswani PGDBM research analyst and the authors of this report have not received any compensation from the companies mentioned in the report in the precedingtwelve months. Our research professionals are paid in part based on the profitability of ICICI Securities, which include earnings from Investment Banking and other business.ICICI Securities or its subsidiaries collectively do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of theresearch report.It is confirmed that Deepak Purswani PGDBM research analyst and the authors of this report or any of their family members does not serve as an officer, director or advisory board member of thecompanies mentioned in the report.ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. ICICI Securities and affiliates may act upon or make useof information contained in the report prior to the publication thereof.This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution,publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securitiesdescribed herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of andto observe such restriction.This report has not been prepared by ICICI Securities, Inc. However, ICICI Securities, Inc. has reviewed the report and, in so far as it includes current or historical information, it is believed to be reliable,although its accuracy and completeness cannot be guaranteed. ICICIdirect.com | Equity Research Downloaded by in-pwcdel from 117.198.120.163 at 2011-08-15 03:39:26 EDT. ISI Emerging Markets. Unauthorized Distribution Prohibited. Page 8