Combo meal dearer than realty stocks combo

I had written this on August 26, 2011.

One chicken burger, a cold drink and potato wedges, the combo meal at any outlet costs anywhere between Rs 120-200 per meal. That's still expensive, compared to real estate stocks.

The combo offer of North-based realtor Parsvnath Developers Ltd (PDL), South Mumbai-based prime property builder, Orbit Corporation and the country's second largest realtor according to market capitalisation,Unitech, all put together are cheaper than your combo meal. At the close of the day, their shares closed at Rs 46.05, Rs 34.85 and Rs 25.15 each, a combo price tag of Rs 106.05 each share on India's oldest bourse, Bombay Stock Exchange (BSE).

Share prices have continued to fall since last one year and in the last one week most of the stocks have hit their 52-week low. But mostly developers, who have pledged shares like Orbit Corp, PDL, Nitesh Estates have not let this chance slip by and have started accumulating shares from the open market. Promoters whose holding is already above the threshold limit of 75 per cent cannot participate in this race, as prescribed by the government. Thus Omaxe could not be a part of the race.

Orbit Corporation, promoted by Pujit Aggarwal, has been buying shares from the open market since last one month. A senior official privy to the development says, "Pujit Agarwal has bought close to 4 lakh shares from the open market in the last 3-4 weeks."

Ramshriya Yadav, the chief financial officer of the company confirmed the development.

As of June, 2011, the promoters own 49.99 per cent stake in the company, which will go up by the end of this quarter. It has also started paying back to Edelweiss and IFCI from whom it had raised Rs 150 crore by pledging promoter shares. It has started repaying the loan and has paid close to Rs 5 crore. It released 1.22 crore shares or 23 per cent pledged shares in July by placing three land parcels against those shares. The promoters earlier had to increase the amount of pledged shares to 77.22 per cent from the 67.67 per cent when initially pledged to raise the loan.

Not to be left behined, PDL promoters Pradeep Jain and his family members have also increased their stake in the company, by purchasing 23.75 lakh shares from the open market, an increase of 0.81 per cent. The promoter stake in the company has moved from 67.66 per cent at the end of Q4FY11 to 68.21 per cent in Q1FY12.

Nitesh Estates, promoted by Nitesh Shetty, has increased his stake from 42.48 per cent to 43.67 per cent in June quarter. An email sent to the company went unasnwered.

Another company, Sunteck Realty, promoted by Kamal Khaitan which is jointly developing properties with Ajay Piramal under the brand name Starlight Constructions, has seen an increase in its promoter stake too.

It owned 67.02 per cent shares in March 2011, which has gone up to 67.78 per cent in the first week of August.

Kamal Khaitan, managing director, Sunteck Realty, said, "We have been doing creeping acquisitions and we will continue to do so."

It is always considered favourable by bankers when realtors pick up shares of their company, but this time around analysts are skeptical. As developers increase their stakes in the company, their pledging towards financial institutions have also increased.

A senior realty analyst said, "Promoters are buying from the open market and increasing their pledging so they need more shares at their perusal. Also at this price point it is favourable for them to buy their shares as most of the promoters have less than 50 per cent holding in the companies due to stake sales through qualified institutional placements (QIPs) in the last two years."

Analysts also contend that financial institutions have increased the margin of pledging towards the loan raised, thus if the developer can't keep up to the commitment, they will start selling the shares in the open market, which means a realty combo meal will be cheaper than government's mid-day meal budget for a single child.

The only company to move otherwise is Dynamix Balwas (DB) Realty, where the Chairman,Vinod Goenka's brother, Pramod K Goenka, has sold his entire 1.15 per cent stake, thus, pulling down the promoter stake to 61.65 per cent in Q1FY12 from 62.77 per cent in the end of financial year 2011. The share hit its new low at the end of the day at Rs 61.95, a drop of 3.13 per cent on BSE.

Jaiprakash Cement's acquisition of Andhra Cements irks street

The acquisition of total 27.19 crore shares in Andhra Cements by Jaypee Development Corporation — an associate firm of Gaur family-promoted Jaiprakash Associates(JPA) — has not augured well with the investors.


After the all-cash deal Andhra Cements will walk away with close to Rs 326.32 crore. Jaypee Group will pay Rs 12 per share for this transaction, which includes a controlling stake of 32.95 per cent, a proposed preferential allotment and an open offer payment which will trigger after the acquisition of the first block of shares.
According to analysts, this deal could become achillies heels for the North-based company unless there is clarity on the rational for this acquisition by JPA.
Jaypee Group has valued Andhra Cements at $115 enterprise valuation per tonne, a stark contrast to what other cement manufacturers were willing to pay which was close to $75-90 ev per tonne.
The deal does not specify if it includes the additional capacity that Andhra Cements was planning to add to its existing capacity of 1.4 million tonne per annum(mtpa). They were looking to expand to 3.5 mtpa, though sources confirm that Andhra Cements has not placed any equipment order for its plants. It effectively means JPC will have to start from the scratch to start operations in this unit.
A lot of questions have gone unanswered for investors as the deal fructifies in the corridors of Jaypee's New Delhi office.
According to an analyst with a foreign brokerage, "JPA has not clarified to its investors why it bought the company and put the acquisition burden on an associate company and not on the cement specific company, Jaypee Cement." Jaypee Cement, the third largest cement venture in the country, is the highest levered cement manufacturer. Its debt on the books is a humongous Rs 11,500 crore by the end of March 2011.
Since cement oversupply has hit the country, Andhra Pradesh has been the worst hit state with an oversupply capacity of 15 mtpa in the state.
Analysts also question that the deal does not clarify if the debt raised by Andhra Cements consists of any capital commitment for its brown field expansion or merely the company's existing loans which will show on JPC's books. The AP-based company has a debt burden of Rs 438 crore and an enterprise valuation of Rs 787.8 crore.
Andhra Cements, has been looking for a buyer since last five years, but none of the talks fructified as it was looking for a handsome valuation. Also the cement manufacturer has stopped production since financial year 2011.
On November 14, JPA had announced that it will demerge company's cement plants in Gujarat and Andhra Pradesh into its wholly owned subsidiary, Jaypee Cement Corporation Limited (JCCL) implementing 3 million tonne per annum (mtpa) cement plant in Karnataka.
An analyst tracking the company said, “The parent company had decided to hive off the AP and Gujarat plants in the run up to the divestment of its stake to a private equity group which was considered to be a positive move. And on the other hand it has gone ahead and bought controlling stake in a company which is based in Andhra Pradesh which is the most vulnerable state for cement production and that too a company which has shut down its production in FY11. It has sent very negative signal to the investors of the company.”
Last month, National Stock Exchange (NSE), has suspended the trading of shares of Andhra Cements due to non-compliance with listing agreement provisions.
At the end of the day shares of JPA fell by 4.49 per cent to Rs 67.05 per share whereas stocks of Andhra Cements went up by 4.97 per cent to close at Rs 10.98 per share.
The average amount paid for deals between 2005 and 2008 was around $168 per tonne as against $121 per tonne a decade before.
JPA's cement production has increased to 14.71 million tonne in 2010-11 as compared to 10.69 million tonne in 2009-10, a jump of 37.6 per cent. It is on a major expansion drive of increasing its capacity to total 35.5 million tonne by the end of this financial year.