DLF issue subscribed 78% on day one

Backed by big bids by foreign institutional investors, Delhi-headquartered DLF's mega initial share sale got off to a decent start, receiving bids for 78% of the shares on offer on the opening day of issue today.

Foreign investors bid for 120.01 million shares out of the 104.4 million shares reserved for the qualified institutional buyers (QIBs) while domestic finanacial institutions submitted bids for 13.36 million shares. The QIB portion was subscribed by 1.28 times.

But, the response from retail investors, who generally place bids on the last day of application, was as expected slow. The retail portion was subscribed by 0.0328 per cent on the first day. For the total of 52.2 million shares reserved for retail investors, the company received bids for 1.7 million shares on the opening day.

The first day's response by investors to the Rs 9,630 crore initial public offering (IPO), the biggest ever in India, has surprised many, given the divided verdict given by brokerages for the share issue.

The company is raising Rs 8,750-9,625 crore through the IPO at a price band of Rs 500-550 per share.

"DLF is a big issue. Investors' response to the issue caught us by surprise. Subscription to most IPOs in the past has shot up on the last day," said Shailesh Kanani, analyst with Angel Broking. "If the trend continues, DLF should be subscribed many times over."

Meanwhile, the expected re-rating of the real-estate sector, triggered by the DLF issue, has resulted in a sharp spike in share prices of other listed stocks in the sector such as Unitech, Parsvanath, Sobha Developers and Indiabulls Real Estate in morning trades. But, the shares came down in the latter half of the trading day on account of profit booking. Barring Unitech, all other realty players ended the day in red.

The Bombay Stock Exchange's 30 share index, the Sensex, which opened higher by nearly 200 points in the morning, lost as many as 167 points in the last two hours of trading.

Sobha Developers led the pack with a high of Rs 880.10 and a low of Rs 836, finally closing at Rs 843.25, down by 1.16 % from its previous close. Unitech closed at Rs 507.45, up by less than half a percent.

"Unitech and DLF are similar players, in that both have large landbanks in NCR (National Capital Region)," said Rupa Shah of Finquest Securities.

"Unitech has shown steady appreciation since the day DLF's IPO got the Sebi nod," Kanani added. Unitech share prices have risen from Rs 459.80 on May 11 to Rs 507.45 on June 11, up almost 10%.

The share sale will give DLF a market value of $24 billion, more than double that of Unitech, which is the currently India's biggest property developer in terms of market valuation.

Updated at 1400 hrs: Realty major DLF's public issue got off to a sedate start with about 60% of the issue subscribed as of noon today. Of 175 million shares offered by the company, 112 million or 0.64 times of the total issue had got subscribed. Though the exact subscription by retail, qualified institutional buyers (QIBs), high networth individuals (HNIs) will be known only by the evening, bankers said the QIB portion is already subscribed.

Touted as the country's largest public issue, DLF's Rs 9625 crore IPO opened today. K P Singh-promoted DLF is offering 17.5 crore equity shares of Rs 2 each through a 100% book building process. The price band is Rs 500-550 per share and the promoters are diluting 10.27% of their holding.

DLF has said it would invest Rs 3,500 crore - roughly a third of its planned initial public offering (IPO) - in building up its land reserves and Rs 3,490 in development and construction.

On the valuation side, analysts and brokerages are a divided lot. "We see a very good upside on the stock in the long term since the company is expecting very good profits in the next two years from its new forays into hospitality, SEZs, healthcare and so on. For a one year horizon, the lower price band is the best buy," a research analyst from Religare Securities said.

Brokerage house Enam said: "At the upper band of Rs 550 the stock trades at a premium to our base case valuation of Rs 404. We believe the stock is overvalued and initiate coverage with sector underperformer rating and a price target of Rs 404".

The share sale will give DLF a market value of as much as $24 billion, more than double that of Unitech, which is the country's biggest property developer. The real estate major added that it can develop up to 575 million sq ft of real estate space on 10,255 acres (4,150 hectares) of land that it owns or has rights to in 31 cities.

The company received the approval from market regulator Sebi for its IPO on May 7. The company's IPO is coming after a gap of one year since the first time it filed its DRHP. DLF filed its first prospectus in May 2006, which it had to withdraw in August, due to certain regulatory objections over complaints of minority shareholders against the company. It had filed a renewed prospectus in January this year. The Delhi High Court also cleared the IPO recently.