Monday, September 08, 2008

Wait until they mop up

More on DLF buyback.

Realty and infrastructure is a capital intensive industry that is badly mauled by the global liquidity crunch. With demand for high end luxury homes and commercial complexes waning, the focus is on low margin budget buildouts. Even as realty companies conserve every rupee they can to meet the resources crunch, DLF worried about the falling share price (down by more than 50% from its peak of Rs.1225 in Jan 08) and announced a Rs.11 billion buyback (at price not exceeding Rs.600/- a share) to reassure itself and its minority investors.

Now is that a wise decision at this crunch time? As a long term shareholder I can’t care less. Know why? This whole buyback exercise is a temporary prop. Remember what happened to Ranbaxy stock recently? Even institutional shareholders like LIC and GIC tendered their entire holdings in the offer and the stock fell to Rs.450 levels from Rs.580 post buyback. So if you are a long term investor and want to pick up asset rich DLF cheaply, just wait for the mop up exercise to be over. Even after a recent downgrade, Deutsch Global values DLF NAV at Rs.532 a share.

Not bad. The news is that after the statutory cooling period of six months (for fresh capital issues) is over, DLF has plans to raise Rs.10,000 crore by way of private placements. When the market knows this, the buyback offer is just false bravado... The problem is DLF may be a sizeable enterprise; but its management is new to public markets behavior. So when the stock price falls because of market's general indifference towards the realty sector, DLF management is overreacting.
They too will learn...!

No comments: