DB Realty: Getting on track

A series of acquisitions and projects will prop up earnings to normalise valuation parameters.

The Mumbai-based realty developer, DB Realty, is seen as a front-runner when it comes to revival of real estate stocks. After getting battered immediately after its listing at Rs 468 on February 24, the share price plummeted to Rs 355, but has now recovered to settle at Rs 430 levels.

It still remains below the listing price. However, acquisition plans of around 44 million square feet land in and around Mumbai has boosted sentiment. These will be through the joint development or joint venture route and will mostly involve redevelopment and rehabilitation. The initial cost of these acquisitions is expected to be around Rs 3,300 crore. Analysts estimate the company can manage it with its strong cash position. The company’s net worth is almost Rs 3,000 crore. It has a cash balance of around Rs 660 crore, while sales are expected to bring another Rs 1,000 crore, say analysts at Enam Securities.

The gross debt is expected to increase to Rs 1,470 crore from Rs 580 crore. Analysts at Antique Securities expect the company to have a net debt of around Rs 930 crore in the year ahead. The interest cost will also rise, but the growth in net earnings will be stronger, reckon analysts. The June quarter saw net profit double to Rs 61.8 crore as against Rs 25.2 crore a year ago.

Till August 24, the company had sold around 1.12 million square feet property at around Rs 566 crore. This should give traction to revenues and earnings, despite an increased interest cost. The price to earnings for FY10, at around 42.3 times, is expected to rationalise in the current financial year at around 15 times. This would be a solace for investors, especially those who bought shares in the initial public offering. Steady execution and visibility in earnings could be added bonuses.