Issue opens: November 19, 2007
Issue closes: November 22, 2007

Most of Kolte Patil's business comes from Pune, which makes it risky.

Pune's realty boom has spread its wings far and wide across the city, with real estate players like Kolte Patil Developers focusing on the geography.

Kolte Patil has completed construction of around 4 million sq ft of residential, commercial and IT park projects in Pune city in its 16-year history. It also has a small presence in prime locations of Bangalore.

The company now proposes to raise between Rs 237-275 crore for its expansion in Pune and Bangalore, via an IPO. The price band for the issue is fixed at Rs 125-145 a share, with 19 million shares on offer.

The issue constitutes of 25.25 per cent of the company's fully diluted paid-up equity capital.

Kolte Patil boasts of impressive project-specific joint ventures with ICICI [Get Quote] Ventures and K2 Property, a subsidiary of Yatra Capital, which is an AIM-listed realty fund. In order to make a foray into the hospitality sector with serviced apartments, it has tied up with UK-based Arora International, to run its hotels.

Financially, the company has shown a consistent growth over the past four fiscals, albeit with a larger than normal spike in revenues and profits in FY07.

Profitability too, has risen dramatically, as its operating margins which have ranged between 8-12 per cent over FY03-FY06, have gone up to 40 per cent in FY07. 
 

NUMBER NUGGETS
Rs crore	FY07	FY08E	FY09E
Revenues	230.3	300	345
Operating profit	108.3	135	155.25
OPM (%)	47	45	45
Net profit	83.6	105	120
NPM (%)	36.3	35	34.7

Going forward, the company aims to develop a saleable area of about 18 million sq ft of residential, commercial, IT park and serviced apartments, by FY10.

Including this area, the company claims to have land reserves of a saleable area of over 39 million sq ft. However, less than four per cent (Rs 10 crore) of the price of this land (Rs 286 crore) has been paid for, and the rest is to be funded from the proceeds of the issue.

Further, due to a number of partnerships and JVs, the company would be entitled to book revenues for only about 13 million sq ft of its total land reserves on a pro-rata basis. 
 

TOO FAR, TOO WIDE
	Land reserves as per RHP	Out of which fully owned
Residential	34.1	8.8
Commercial	1.9	1.8
IT Parks	3.1	2.33
Serviced Apartments	0.026	0.013
Total	39.13	12.94
Saleable area in million sq ft

Add to this, execution remains a prominent risk, as the company has developed only about 4 million sq ft over 16 years in the past, and it plans to develop 18 million sq ft over the coming three years.

Again, the concentration in one city, with over 90 per cent of the saleable area in Pune too, leaves the company vulnerable to shifts in real estate prices.

The company still has a lot to accomplish, starting from acquisition of a sizeable land-bank on its own and expanding beyond just one or two cities, to a stable operating performance financially. Investors may skip this issue, for the markets offer many a better alternative.