Money Tree

Orbit Corporation Ltd is an ISO 9001:2000 certified real estate construction and development company. The company is coming out with a unique first of its kind instrument. The allottees of equity shares will be issued convertible warrants excercisable after 18 months of the allotment.
This is an innovative instrument good for the company as well as investors. The company will keep getting money from 18th to 30th month of issue to keep its projects going and investors will get the new shares at a discount of 30 percent in case the market price is below its issue price at the time of conversion and at a discount of 10 percent if the market price of the stock is above its issue price.

The salient features of the issue are given hereunder:

Issue Opens On : March 20, 2007
Issue Closes On : March 23, 2007
Issue Size : 9,100,000 Equity Shares
Face Value : Rs.10/-
Price Range : Rs. 108 to Rs. 117/-
Listing Stock Exchange : BSE, NSE

Issue of Warrants :

Providing shares along with one detachable Warrant per Equity Share.

The warrant conversion will be calculated as follows:

If the market price goes below the Issue Price, shareholders can exercise their warrants at a 30% discount to the prevailing Market Price. If the market price is at or above the Issue Price, they can encash it at a 10% discount to the Market Price.
The Warrant can be exercised into an equity share commencing from the completion of the 18th month upto the completion of the 30th month from the date of allotment of Equity Shares and Warrants.

Objects Of the Issue :

To finance Issue Expenses.
To make Investments in wholly owned subsidiaries.
To meet Project development cost of the existing projects.
To pay Advances towards acquisition cost of new projects.

Basis for Issue Price :

Face Value : Rs.10/-
Issue Price : 10.8 Times(Lower Price Band) of the Face Value.
Issue Price : 11.7 Times(Higher Price Band) of the Face Value.
Issue Price : Rs. 108 to Rs. 117
EPS for the last 9 months of the year 2006 : Re.0.02
EPS for the last year (2005-2006) : Re.0.08
Weighted Average EPS for the years 2003-2006 : Rs.2.79
Industry PE ratio:
Mahindra Gesco(Highest) : 249.1
Lok Housing(Lowest) : 3.3
Average industry PE ratio : 50.4
PE ratio of Orbit Corporation on the higher side of price band comes out to 41.94 times and on the lower side of the price band comes out to 35.84 times on the basis of weighted average EPS for last 3 years.

Industry Overview :

Real Estate is turning out to be an alternative as compared to other investment opportunities.
It provides investors a possibility of stable income yields, capital appreciation, tax structuring benefits and higher security.

The real estate market in India has been witnessing increased activity. Demand for real estate is on an upswing reflected in higher prices despite increased supply. For every one rupee invested in the construction of houses, an estimated 75-80% is added to the GDP and the sector assists to the development of over 250 other ancillary industries. The real estate sector is amongst the top 3 employment generators in India.

Business Overview :

Currently focussed on redevelopment of residential properties in the Island city of Mumbai.
It has 18 years experienced promoters directors in the real estate sector.

History :

Orbit Corporation was incorporated on March 7, 2000 under the Companies Act as “ORBIT CYBERTECH LIMITED”.
The Company got the Certificate of Commencement of Business on October 12, 2000.
The name of the company was changed to “ORBIT CORPORATION LIMITED” on April 10, 2006.

Financial Information :

Total income of the Company for the year ended 31st March, 2006 : Rs.8.08 millions
Total income of the Company for the period ended 31st December 2006 : Rs. 4.39 millions

Net profit (after tax) for the year ended 31st March, 2006 : Rs.9,20000/-
Net profit (After Tax) for the period ended 31st Dec, 2006 : Rs.6,30000/-
Comments :

The company is engaged in redevelopment of existing properties and has priced its shares aggressively nearing its peers in real estate and construction space. The company is not very reputed and is not having very big projects at hand. At the current issue price it seems to be a bit over priced.
Some good real estate companies like Ansal Housing, Parsvnath Developers and D S Kulkarni Developers are available in the secondary market at almost the same PE ratio.
We recommend that only those investors should apply to this IPO who have a long term view of holding it for two to three years. It might not list at a very high premium.