Valuation to be based on development plans

Valuations of real estate companies waiting to hit the capital market is likely to be based on their development plans and not on their land banks, in the wake of Sebi tightening norms on real estate IPOs in future. Experts say with the measurement parameter likely to change to development plans, a sharp fall in the valuation of real estate companies is a possibility. “If real estate companies are valued on the basis of their development plans and not land banks, the fall in the valuations could be anywhere between 30-50%,” said National Real Estate Development Council deputy director Sumit Jha. Analysts have already started re-rating real estate companies. A research report released by Macquerie on Friday has this to say about IVR Prime Urban, the real estate subsidiary of infrastructure major IVRCL: “We have reduced the valuations of the real estate business. Our valuations of the real estate subsidiary are now based on development plans instead of the land bank. As a result, we value the subsidiary at Rs 80 of IVRCL vs the previous Rs 147. The large proportion of land aggregated under joint development and contractual agreements is a key reason for the downward revision in our valuations.” DLF, which is looking at raising an ambitious Rs 13,000 crore from the capital markets, however, say that its valuations will remain uneffected. The company’s executive director Rajeev Talwar said, “For us, landbank was anyway not the parameter for projecting our valuation.” Industry experts point out that development projects where companies have entered into memorandum of understanding with farmers, will not be taken into account while calculating the valuation.