Tags:
Journalism of Courage
Post-issue, the DLF stock is by all indications, set to join the Sensex. Its cousin Unitech (trading around Rs 550), is unlikely to be left behind. Their combined weight in the Sensex is expected to be around 2.27 per cent. This is based on the current price of Unitech and the higher of DLF’s Rs 550 price band.
The number could be higher – given the relative fundamentals of the two companies, I expect DLF to settle at a higher price. Comparing valuations, DLF’s price-earnings multiple, given its quality of land banks, the expanse of business and brand value, should come at a 20-25 per cent premium over Unitech’s, but we await the market for ‘price discovery’.
Raising Rs 9,625 crore based on an issue price of Rs 550, DLF would be India’s largest IPO. At this price, with a market capitalisation of around Rs 96,000 crore, DLF would be India’s eighth most valued company, between ICICI Bank (Rs 84,000 crore) and Reliance Communications (Rs 104,000 crore) and its 10 per cent free float would enable it to influence the Sensex to the extent of 1.04 per cent, more than ACC (1.02 per cent), Maruti (1.01 per cent), Reliance Energy (0.94 per cent), Dr Reddy’s (0.89 per cent)and Hero Honda (0.77 per cent).
Country cousin Unitech – the company has 64 per cent of its land banks in non-metros than DLF’s 75 per cent, according Sharekhan – which, at Rs 46,000 crore, is valued at less than half of DLF, is India’s 17th most valuable company. But it will carry a higher weight in the Sensex than DLF. Because of its higher public share holding of 25 per cent, its Rs 11,000 crore free float would give it a weight of 1.23 per cent – this would add Ranbaxy (1.10 per cent) and Cipla (1.19 per cent) to DLF’s list (above).
As I see it, ceteris paribus – all forecasters need to have a fine print to save their skin, just in case – building over the next six months, is a Sensex weight of 2.27 per cent of these two diversified real estate companies (they have exposure to hotels, SEZs, besides building apartments, suburbs and mini-cities). In less than a year, the number, riding performance and stock buoyancy of the two companies, should rise to 2.5-2.7 per cent. What this will mean going even farther is difficult to construct right now – hindsight is easier to rebuild.
But history has its lessons. Go back to November 1998, when Infosys became the first IT company to enter the Sensex and see how the presence of the sector has grown to command a weight of 17.5 per cent in eight years. Or to November 2003, when the first telecom company, Airtel, joined the Sensex to kick start a 9.86 per cent weight in the index today.
At macro level, Construction has grown at 14.2 per cent and 10.7 per cent over the past two years to capture 6.9 per cent share of GDP (we’re not including ‘real estate’ as it comes clubbed with Financing and Insurance). The question, then, is: if Sensex is representative of the country’s broader economic activity as the relatively recent experience of IT and Telecom has shown, and if buying houses and shops has become the national pastime of an affluent constituency that’s only increasing in size, are Unitech and DLF going to be precursors to a greater real estate presence in the index?
