IDFC Alternative Management Buys Assets In Pune

According to a leading Business Daily (Mint), IDFC subsidiary ’IDFC Alternative’, which is into the Real Estate segment, has bought assets worth an approximate amount of Rs 250 crore in Pune. The company purchased these assets from Paranjape Schemes Constructions, which is a real estate developer and has constructed some buildings in Hinjewadi area also known as the IT hub of Pune.

IDFC has bought some of these buildings in Hinjewadi which is also a special economic zone (SEZ) having around 6 buildings spread over an aggregate of 1.48 million square feet area and hosts tenants like Accenture Services and Persistent Systems.  

Its real estate arm Alternative asset management is focusing on buying out the real estate space across the country and then generating income through leasing them and holding the investments to get a good capital appreciation over a period of time. According to media reports, the company has done this kind of acquisition earlier too. It had acquired some equity stake in the special purpose vehicle named Galaxy Mercantile in the NOIDA region which has an aggregate area of around 1.36 million square feet. 

IDFC Alternative Segment’s average Asset Under Management stands at Rs 8074 crore as of December 2012, of which Private equity has an aggregate of Rs 4237 crore, while its Project equity has the remaining amount of around Rs 3837 crore. For the nine months ending December 2012, asset management fees decreased by 4% to Rs 87 crore on a YoY basis. While capital gains and carry segment of the Alternative segment reported a decline of 66% to Rs 13 crore on a YoY basis.

Overall, we believe that the rental yield concept has been in the news for quite some time and the companies are looking at the same in the current environment. This is because real estate prices have softened in some parts of the country and holding these for a while (8 to 10 years) could get a good capital appreciation along with the regular rentals which would result into good cash inflows for the company.

However, one should note that one of the largest on-line property sites, magicbricks.com shows us that prices of rented commercial houses has declined by 24% to Rs 35 per sq ft on a QoQ basis in the Hinjewadi area. This could yield lower returns to the company in the short run. However, being an IT hub, the prices of rental as well as capital appreciation is bound to go higher in the coming years.

We believe that the actual impact of the same would be known only when the full disclosure is made by the company. Further, IDFC also had expectations that infrastructure bonds would be approved and the company would be allowed to raise funds through the same. However, the Budget 2013-14 remained status quo on that front, continuing its second year of not allowing companies to raise funds through this route.

If one broadly recollects, we at Dalal Street Investment Journal had done a complete analysis on IDFC in our Volume 28, Issue No. 5 (dated February 24, 2013). We had recommended investors to buy the stock at Rs 158 per share. It is currently trading at Rs 148 per share, down by 6%. We believe this is on account of an overall volatility in the market and fundamentally the company is still looking good and would therefore advise investors to hold the counter.