Will Parsvnath Developers' IPO test the appetite of real estate investors?

India-based Parsvnath Developers plans to IPO before Hindu new year next month. Chairman Pradeep Kumar Jain speaks about the company and the opportunities in the Indian real estate market.
India-based Parsvnath Developers plans to IPO next month. Chairman Pradeep Kumar Jain speaks about the company and the opportunities in the Indian real estate market:

What regions in India do you develop projects in?

Although we started in North India we now have a pan-Indian presence. Currently, we have operations in 30 cities covering nine Indian states.

What is in your real estate portfolio?

We are currently developing about 100 projects. In realisation terms this translates to approximately $8 billion of saleable value on hand. This includes 12 integrated townships, 19 residential projects, 20 commercial complexes including shopping malls and one hotel. We have completed six housing projects and eight commercial complexes.

What are your future plans in the sector?

In addition to what we currently have on hand we plan to diversify into the development of resorts and information technology parks. Pursuant to the government policy of setting up special economic zones (SEZs) in the country to provide a competitive and hassle-free environment for exports, we will also be developing 14 SEZs.

What is your outlook for prices in IndiaÆs real estate market?

The scenario is such that even today demand is hugely in excess of supply. The present government understands the importance of infrastructure development and encourages private participation. The focus on airports, metros and highways is already yielding dividends. For example, travelling between Delhi and Chandigarh or Delhi and Jaipur three years ago used to take between five and six hours and was unpredictable. Now it is reliably three to three-and-a-half hours due to new world-class highways.

Where do you foresee maximum growth going forward?

The appetite to buy real estate is higher in IndiaÆs tier two and tier three cities than in the metros. The reason for this is reverse migration: the people who once moved to the metros looking for work will return to their native homes. Thus smaller towns, for example in Haryana and Punjab, have huge potential to develop.

Why do you remain bullish on real estate prices despite the huge bull run?

India is witnessing a huge economic boom. Housing, good quality commercial office space, hotel rooms are all in perennial short supply. Shopping bazaars are being replaced by malls. Access to housing finance has become easier and cheaper û Indians used to pay interest rates in the twenties on housing loans, now, even with a recent upward announcement they pay 9%. Home owners earlier used to be middle aged but the shift from joint families to nuclear families means they are now younger. All these factors suggest demand will continue to grow.

Why did you decide to IPO Parsvnath?

We believe our brand will benefit from being a listed company. We will be more high profile which will inspire confidence in investors with respect to our larger projects. The funds we raise will make us more comfortable with respect to our debt-to-equity ratio and will also provide long-term funding for us to execute projects such as ôbuild, operate, transferö and the SEZs I mentioned.

Are Indian investors ready to accurately assess the value of real estate portfolios and invest in offerings from real estate players such as yourselves?

Real estate valuation is easy for investors to understand because it is a tangible asset. With respect specifically to Parsvnath investors, they should focus on the current projects on our balance sheet. We are a transparent and professional developer and believe investors will value this.

How has the stock market correction and prevailing uncertainty affected your capital raising plans and valuations?

The real value of our company doesn't change when the stock market goes down. I believe the appetite for good quality paper is still there and investor sentiment is improving. I plan to raise more then Rs10 billion ($215 million) and will dilute less then 20%.

You are a first generation entrepreneur in an industry where many players have a history of operating. How do you view this?

My background gives me a significant competitive edge in the industry. I started my career as a real estate broker then moved on to being a contractor and finally to being a real estate developer. Thus I am tuned in to the nuances of the industry. As a first generation entrepreneur I am in the business I want to be in. I believe I have earned the respect of people who deal with me for developing this business from scratch û for example we are the only real estate company doing 100% construction inhouse. I also believe we are well placed to handle and deal with any calamities which may arise, due to my familiarity with all aspects of the business.

For an in-depth review of the Indian real estate market, read the September 2006 issue of FinanceAsia magazine, pages 50-60.
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