Prozone CSC Gets Listed At Rs 26 A Piece

Prozone CSC, the real estate arm of Provogue, got listed on the bourses on Wednesday, September 12, 2012 at Rs 26 per share. On the first day of trading, Prozone closed lower by 5.05 per cent at Rs 24.75 per share. Provogue too ended the day lower, closing at Rs 14.45, down by 5.99 per cent. In the first half of 2012, Provogue undertook a demerger of its 75 per cent holding in Prozone and investors were offered a share of Prozone for every share held of Provogue.

Prozone CSC is a joint venture between Provogue and UK’s Capital Shopping Centres Group PLC (CSC), a UK-based real estate investment trust which is largely focused on shopping centre management and development. Prozone’s plan is to develop retail-centric mixed-use developments in the emerging urban areas of India. The company launched its first retail project in Aurangabad in October 2010 and has received a tremendous response since its inception.

Prozone expects to commence operations by developing mall space of 6,64,318 square feet in Coimbatore and of 6,75,000 square feet in Nagpur, both by October 2014. The company also plans to build residential townships in Indore, Jaipur and Mysore with development taking place in phases and an inflow of cash expected between 2013 and 2018. Residential projects of around 1.5 million square feet and commercial developments are also planned around the Coimbatore and Nagpur malls where the company is sitting on excess land for retail-centric mixed-use development.

Provogue started acquiring land on a large scale and the freehold land value on the consolidated balance-sheet of Provogue was Rs 229.18 crore in FY11. At the moment, all the land required for its planned projects is already in the company’s kitty. Apart from sourcing cash, this alliance has given them leverage in terms of knowledge, experience, systems & processes, training and management skills, among others. Moreover, the company has a low net debt, standing at Rs 72.46 crore and the management aims to keep the company debt-free by clearing the debt taken for the development of malls through cash flows generated from the sale of residential and commercial property, and hence timing these developments accordingly.

In accordance with the earlier deals and stake purchases, the company has been valued in the range of Rs 810 crore and Rs 1,600 crore. We think that all of these projects were valued at a time when the industry was booming and investors were optimistic about the growth of real estate.

We have taken into account various factors revolving around the current scenario and considering the net present value of the cash flows that would incur from all the SPVs of Prozone, while keeping in mind the stake of Prozone in each of them, have arrived at a cumulative worth of around Rs 325 crore. In accordance to this, we had predicted the stock to get listed at a price of Rs 26-28 per share in our magazine ‘Dalal Street Investment Journal’.