CapitaMalls' India Partner Prestige Estates to Start Selling Shares in IPO

Prestige Estates Projects Ltd., the Indian developer in a mall venture with CapitaMalls Asia Ltd., began selling shares in an initial public offering today as the nation’s five-month property IPO lull ends.

Prestige, which mostly develops real estate in Bangalore where it is based, aims to raise as much as 12 billion rupees ($270 million) from the sale. The company will sell shares for as much as 183 rupees each, according to an e-mailed statement.

The developer sold 11.77 million shares at 183 rupees each to investors including the Government of Singapore, HSBC Equity Fund and Monetary Authority of Singapore before the sale opened.

Oberoi Realty Ltd., which completed a sale last week and aims to raise 10.3 billion rupees in an IPO, and Prestige’s sale may prompt $3 billion of property share sales at a time when real estate stocks have underperformed the Bombay Stock Exchange’s benchmark Sensitive Index. The BSE Realty Index has gained 1.4 percent this year, compared with a 16 percent rise in the Sensex.

“We are bullish on both the physical real-estate market and realty stocks,” said Vaibhav Sanghavi, a fund manager at Ambit Capital Ltd. in Mumbai. “Though property stocks haven’t performed well so far, we expect the strong demand in the physical market to flow into stocks over a period of time.”

Indian realty companies such as Lodha Developers Ltd. and Emaar MGF Land Ltd. are among at least 11 builders waiting to tap the market, according to data compiled by Bloomberg.

“We are seeing some quality paper coming to market so that’s a good sign,” Sanghavi said.

Prestige plans to use the proceeds from the IPO to complete pending projects, buy land and repay some loans, said Irfan Razack, chairman at the company.

Not Cheap

The builder, which has completed 150 projects and developed 34.23 million square feet, has rights to develop 57.36 million square feet of which 28.43 million square feet is saleable area and 11.04 million square feet is for lease, according to a company statement.

Prestige’s price to earnings ratio is 33 times its 2010 earnings at the upper end of the price band, based on calculations using data provided by the company in the prospectus. Rivals Sobha Developers Ltd. trades at 25 times earnings, while Puravankara Projects Ltd. trades at 16 times.

“The pricing isn’t cheap compared to its competitors like Sobha and Puravankara,” said Surajit Pal, an analyst at Elara Securities India Pvt. in Mumbai. “Seeing the current mood in the market it may be oversubscribed but there won’t be much left on the table for investors.”

Lower Margins

Prestige focuses on a joint development agreement model for project acquisitions, unlike its peers which focus on a capital intensive model, which may lower its profit margin, Aashiesh Agarwaal, a Mumbai-based analyst at Edelweiss Securities Ltd., said in a note to clients yesterday. He has a “do not subscribe” rating on the developer because the issue price offers a limited margin of safety, he said.

Prestige has partnered with CapitaMalls Asia, the retail property unit of Southeast Asia’s biggest developer, to manage retail malls set up by it and another unit of the Singapore- based developer in South India.

Prestige’s profit rose 97 percent to 1.44 billion rupees in the year ended March 31, 2010. Revenue climbed 19 percent to 10.86 billion rupees.

Kotak Mahindra Capital Co., Enam Securities Pvt., J.P. Morgan India Pvt. and UBS Securities India Pvt. are managing the sale.

To contact the reporter on this story: Pooja Thakur in Mumbai at pthakur@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at Apapuc1@bloomberg.net

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