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.