Execution’s prime

Execution’s prime

IVR Urban Prime Developers has received an investment commitment of Rs 250 crore for its realty projects from Kotak India Realty Fund.

The positive development notwithstanding, the IVR stock fell by 2.3% following the announcement on a day the BSE realty index (benchmark for real estate stocks) ended flat.

One reason for this could be that the market had already factored in the development, as the stock’s 20.8% run-up in the past two weeks suggests.

IVR is a 77.94% subsidiary and the real estate arm of the Hyderabad-based IVRCL Infrastructures & Projects (IVRCL). IVR acquires land and develops it on its own or jointly with others. Its main areas of operation include residential projects, commercial projects and integrated townships.

The IVR stock has underperformed both its benchmark and the broader Sensex since its listing in August - it has appreciated by only 14.7% as compared with the BSE Realty’s 77.6% and the Sensex’s 39.5%.

Analysts blame the underperformance primarily on the poor execution skills of the company, which can be attributed to its little prior experience in this space. However, the fact that competition has increased with a lot of other players entering areas where IVR’s land holdings are located may be a reason, too.

IVR has added around 371 acres of land reserves since its listing, taking the total land reserves to 2,850 acres.

For the quarter ended September 2007 (Q2), IVR clocked revenues worth Rs 45.61 crore and a net profit of Rs 15.93 crore. Its operating profit for Q2 stood at Rs 18.81 crore and operating margins at 41.2%.

The company maintains that, land prices remaining stable, it will see a growth of 40% in its topline going forward.
However, the target looks far too ambitious at least in the next 2-3 years, given its track record of project execution.

Currently, IVR has 25 projects in its kitty, to be executed over 7-8 years. Positively, though, IVRCL’s expertise in execution of projects and professional relationships with the suppliers and sub-contractors could work in IVR’s favour.

However, some analysts are concerned about a possible demand-supply mismatch when the bulk of the industry’s current projects hit the market 4-5 years down the line, given that interest rates have trend up.

It’s another thing that real estate developers, having made good money in the last five years, can hold on to their stock to ensure prices don’t fall. The IVR stock may not look all that attractive now, but given the fact that it’s in the real estate space, there’s no saying what tomorrow holds.

Visibility & volume gains
Gas transmission and distribution major Gas Authority of India Ltd (GAIL) has a lot going for it now. Even as the surge in crude oil prices pushes efforts at commercialisation of alternate fuels, the gas finds by various players spins transmission projects for it, swelling the order book.

The company recently signed a deal to transport gas from Reliance Industries’ fields off the east coast. GAIL would also buy capacity in Reliance Gas Transportation Infrastructure Ltd’s 1,400-km (870-mile) pipeline, which is under construction.

GAIL also has exposure to city gas distribution projects across cities through its 8 subsidiaries and plans to expand to 28 cities. In the long term, this is expected to stand the company in good stead.

Further, it has stakes in 29 exploration and production blocks in the country and overseas, and has found hydrocarbons in five. Any further find should be a good trigger for the stock.

The government’s decision to route the Panna Mukta Tapti gas through GAIL will also result in good volumes growth for the company.

GAIL’s tariffs are determined by the government-appointed Tariff Commission and any adverse decision here remains a key risk, particularly considering significant reductions have already been effected in recent years. However, substantial investments for a bigger network and better visibility on volumes growth on account of recent developments augur well.

In the petrochemical division, the capacity is set to increase post-commissioning of the new HDPE capacity in January 2008. Though not a mainstay of the company, this will provide revenues through volumes growth. Margins may be hampered due to upcoming ethylene capacities in Saudi Arabia.

At a price of Rs 516, the stock is trading at a PE of 17 (trailing 12 months) and may be considered at declines by patient investors with a long-term perspective.
(p_pallavi@dnaindia.net), (devangib@rediffmail.com)