last session check whether to apply Emaar MGF IPO?

Right now, Emaar MGF IPO seems to be in trouble.

Majority of bids are in 540-550 range - the lower end of the price band.

People are no longer willing to buy overpriced IPO's and actually this is a good development. .

Emaar MGF is a new company and does not have much history.

The company was formed in 2005.

It doesn't make sense to look at current earnings/revenues as they will increase substantially in the future.

The company is also not expected to have much cash flows for at least next 2 years.

In such a case, only way to evaluate this stock is the NPV method (Net Present Value).

If one looks at the size of the land bank, Emaar MGF is a big player.

However, unlike DLF, which has a large part of its landbank in prime cities like Delhi, a big chunk of Emaar MGF's land bank is in smaller cities like Dehradoon, Kochi, Mohali etc.

In the RHP, its total land bank is stated as 13024 acres.

Out of this

Dehradoon has 1139 acres, Kochi has 386 acres, Mohali has 2775 acres etc.

Thus, its landbank is not exactly comparable to likes of DLF.

Some analysts estimate the NPV of Emaar MGF to be around Rs 750.

I would say fair price for a real estate stock will be around 80% of NPV.

At 60%(or below) it will be undervalued and at 100%(or above), it will looked stretched.

If we look at two recent IPO's from the real estate sector:

Kolte Patil (current price Rs 170) is trading at 23% discount to its NPV of Rs 220 (estimated NPV at time of IPO).

Brigade Enterprises (current price Rs 295) is trading at a 25% discount to its NPV of Rs 390 (estimated NPV at time of IPO).

A 25% discount to Emaar MGF's NPV of Rs 750 will give a price of Rs 562.

This is just above the lower end of the price band (Rs 540 - Rs 630).

Many companies in the real estate space are trading at better valuations. I think DLF is actually above its NPV.

However. Emaar is unlikely to get premium valuations as most of its projects have just started and not much cash flows are expected for next few years.

Also 80% of Emaar's landbank is agricultural land and the company still doesn't have the approvals to use them for construction purposes.

Most of the bids for this IPO are expected to come around Rs 540 - Rs 550. This seems like the fair price for the stock and not much upside should be expected from these levels.

This is big IPO.

If the IPO gets subscribed more than two times, I will expect the stock to list at Rs 580 - Rs 590.

However, if markets turn bearish, by the time the listing happens, the stock may list below IPO price.

All retail investors will get 100% allotment.

If someone doesn't mind the risk, he can apply at Rs 550...do not use cut-off option.


In short,

Fairly valued at Rs 550.....do not expect much upside.

Retail investors will get 100% allotment.

Listing price subject to market conditions.

Happy Trading