by Paul Joseph
July 14, 2010
Nitesh Estates, the Bangalore-based realtor, has won the bid to develop a 1.5 lakh square feet residential project in Aga Abbas Ali Road, close to MG Road, in Bangalore. Nitesh Shetty, managing director of the company, confirmed the development and said, “The project would add approximately Rs 35 crore to the company’s bottomline.” The developer would hold 45 per cent stake in the project, which it expects to sell for Rs 20,000 per sq ft. It is also looking for another development of 3 lakh sq ft, which would add Rs 65 crore to the net profit next year, according to a report published in DNA. “We have already launched two projects this year and we will launch another eight. We have sold 330 units and expect to reach our target of 1,000 flats this year. We are expecting a net profit of Rs 175-200 crore through the sales,” Shetty was quoted as saying. The construction on the two properties has just begun. The Street is also abuzz with the news that Nitesh Estates is hiking its stake in its hotel project in Bangalore — the first Ritz Carlton property in India. It has 26 per cent stake in the project and the rest 74 per cent is owned by Citigroup Property Investors, which is being bought by Apollo Management. In about 90 days, executives from Apollo are expected to take over. The construction cost of the Ritz Carlton project is close to Rs 700 crore and the property is expected to come up by late 2011. Shetty denied increasing his stake in the hotel property, but sources said that the promoters are looking at raising 10-15 per cent stake in the project as it makes sense going forward. Nitesh is looking at selling around 80-85 per cent of its Kochi property and the project will have investment of around Rs 400-800 crore. The company will sign the deal with an Indian operator by the end of the month, a source said.
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by Paul Joseph
May 18, 2010
With Nitesh Estates’ IPO and subsequent listing confirming the deep downtrend India’s realty sector is facing in the capital markets, and with many of the bigger pending realty IPOs like EmaarMGF & Lodha Developers getting indefinitely postponed, the prospects of BPTP that recently received Indian market regulator SEBI’s nod for a Rs. 1500 crore IPO has turned dimmer. Domestic and foreign investors in the country’s capital markets have been literally hunting to find a real estate firm that can be comparable to India’s bellwethers in corporate governance like Infosys or TCS, but with no avail. One by one, most of the already listed and soon-to-be listed real estate companies have failed to live up to their expectations, right from industry leaders DLF & Unitech to smaller players like Nitesh Estates. The problems include their non-transparent accounting, overvalued land-banks, mounting customer complaints, confusing demand-supply situation, reluctance to address mass housing, colossal debt levels, and silent but massive levels of equity dilution. BPTP’s IPO proposal has been a singularly problematic one in these regards, as a Central Minister of India had clarified in Parliament’s Upper House that market regulator SEBI had received complaints regarding non-disclosures in BPTP’s offer documents. However, despite all these factors, many of these listed and unlisted realty firms have been very successful in attracting foreign institutional investments. BPTP’s case is a typical example. When first generation entrepreneur Kabul Chawla led BPTP, an NCR-Delhi based realty firm goes for its IPO shortly, all eyes will be on how the firm’s substantial overseas equity partners will act to maximize their returns. The company has a significant exposure to foreign equity that includes 10-12% equity at the corporate level and ranging from 17-50% at the SPV level. BPTP has a pan-NCR portfolio of 57 projects of which 17 have been launched or are in the ongoing stage. Of these, 31 projects belong to the Project Parklands integrated township at Faridabad Properties . BPTP projects are spread across such NCR hubs like Gurgaon, Noida, Greater Noida, & Real Estate Faridabad . 36-year old Kabul Chawla is known for his quick moves in the industry, examples being the stake sale to key international investors like Citigroup, JP Morgan Chase, & Merrill Lynch. However, such rapid moves have often invited trouble too with the most infamous being undertaking the largest land deal in the country at Noida for over Rs. 5000 crore, even overtaking DLF, but only to back off months later as the property bubble burst and BPTP was unable to raise the required funds. Finally, BPTP retained only 25% of the land – around 21 acres – for a now criticized figure of Rs. 1300 crore. The now announced IPO is for Rs. 1500 crore. The firm is known to dip in profits in sync with the industry, but to recover quickly too, using quick rate cuts that drive sales. Once known for their luxury and commercial projects, as well as SEZ plans, BPTP is now focusing more on the affordable sub-25 lakh homes for the middle income segment, so as to maintain cash flows. The IPO proceeds would go towards completing some ongoing projects, and repaying part of its high-interest loans. With a debt equity ratio of 0.73:1.0, BPTP seems a reasonable bet, but of course everything will depend upon the final issue price. But after the Nitesh Estates debacle, investors are not willing to count even on a seemingly low price. Investors have lost around 28% from Nitesh Estate’s IPO pricing, as of today (May 19th). Though the IPO will provide an exit route for the foreign investors who hold a substantial stake, it is known that such a move won’t be imminent as there is a lock-in period of 1 year. This should present a favourable post-listing scenario for the short-term, provided the issue is completed successfully. At the same time this can present problems for serious investors and funds looking at long-term growth or tax benefits on capital gains.
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