Stable listing for DLF on a flighty day

MUMBAI: It was June, and the doyen of Indian realty was speaking in Mumbai, after proffering details of DLF’s Rs 9,187 crore initial public offering.

Almost a month later, the markets were kind enough to let his beliefs ring true.Defying Cassandras and expectations, the company’s share came up trumps on debut. In a flighty session which saw peers taking a knock, the DLF scrip closed at Rs 570.05 on the BSE, an 8.5% premium to its issue price of Rs 525.

At a market capitalisation of Rs 97,182 crore, it blasted past some of the older listed heavyweights including ICICI Bank, Bharat Heavy Electricals, Wipro, Larsen & Toubro, ITC, HDFC, Hindustan Lever and Tata Steel.

And more than twice its arch rival Unitech.For the record, it ranked in at No. 8 in the market cap pecking order, sandwiched between Tata Consultancy Services at No. 7 and ICICI Bank at No. 9 (See chart).

Kushal Pal Singh’s son Rajiv is confident that he’ll be able to meet his father’s expectations.

“We already have over 45 million square feet of land under construction. We plan to construct 20 million square feet per year and have already realised 80% of the target for this year.

We expect project volumes to increase and margins to remain higher than the industrial average,” said Rajiv Singh. The sector has of late been bogged by rising interest rates, which reduces demand for property, and hence lowers prices.

But if the worst is over, as many believe on the interest rate front, real estate stocks may also not be far away from making a comeback.

“With inflation under control at below 4% and a good monsoon forecast, we believe interest rates can come down in the near future.

If it comes down, it can have a positive impact on a number of interest-rate sensitive sectors including real estate,” said Ketan Karani, head of research at Kotak Securities. Kotak was the lead merchant banker for the public issue.

Gaurav Pathak of ICICI Securities, in a report on Thursday, said he expects the real estate sector to register 50% year-on-year EBIDTA growth and 83% year-on-year revenue growth for the first quarter of FY08.

Pathak acknowledges that hardening interest rates have resulted in a drop in real estate demand, leading to lower realisations and volumes for developers, and that tightening liquidity has affected the borrowing capacity of developers.

But he feels that the "deferred demand" seen this quarter - when deals were kept away due to peaking rates -  could act as an additional demand driver for the coming months.

Meanwhile, the DLF listing has taken the total market capitalisation of the realty and construction sector to Rs 2,33,736 crore, making it the fifth largest sector in terms of market capitalisation.

Till Wednesday, the sector was languishing at No. 11."Now, it becomes imperative for any fund manager or portfolio manager to look at this sector," said R Rajagopal, head of equities at DBS Cholamandalam Mutual Fund.

Adds Kotak's Karani: "When the largest company gets listed, visibility for that sector improves, and this can draw more international investors."

— With inputs from Sanat Vallikappen