An Indian landlord shows lofty ambitionsNEW DELHI Kushal Pal Singh wants to become India's landlord.
He wants to build Wal-Mart superstores for a mushrooming consumer class. He wants to build skyscrapers that generate their own electricity for outsourcing giants like International Business Machines. And he wants to build apartments with a pool for the aspirational young employees of call centers and software parks.
There is a problem: Singh, a New Delhi real-estate mogul whose company turned a $44 million profit last year, needs money.
And so his bankers are fanning out worldwide to sell an initial public offering of his company, DLF Universal, at a price that would catapult a family business barely known outside this capital city into the ranks of the world's largest corporations.
On the logic that India has so much left to build, DLF is asking for $3.3 billion for about one-eighth of its stock - a $25.7 billion valuation that would make it worth more than General Motors, Gap, Mittal Steel or Reliance Industries, the largest Indian private-sector company.
Lately, as emerging-market stock indexes have plunged, few investors have leapt at DLF's offer, according to bankers underwriting the sale and customers they have approached. Interviews with leading institutional investors here suggested that DLF would be more likely to sell at valuations ranging from $13 billion to $16 billion. The IPO is planned for mid-July, although some bankers suspect it might be delayed until markets recover.
Many investors say DLF's valuation is a textbook case of how investors overvalue developing economies.
V. Navin Roy, a broker to foreign investors at SSKI Corporate Finance in Mumbai, said the lofty valuation was founded on questionable assumptions - among them, that Indian real estate prices would remain high even as new supply was built, and that DLF, a company focused on the suburbs of Delhi, would succeed as a pan-Indian builder.
Pankaj Razdan, managing director at the fund manager Prudential ICICI, said: "Markets are not ready for this kind of valuation. In the economy, nothing has changed. But we have to deal with the fact that the market sentiments have changed."
Even at the lower valuations, Singh, who says he will retain control over the remaining equity, would enter the stratosphere of the global rich. And if stock markets were to pick up and DLF's original valuation were to prevail, Singh would become the wealthiest property developer in the world and India's richest man.
"It is a matter of time that we will start acquiring companies worldwide to become the world leader," Singh said by telephone from London. "It is a matter of who is more hungry for global ambition. At this moment, I think Indians are more hungry. I know I am hungry."
DLF's price tag is all the more remarkable for how little money the company actually makes, despite being the largest developer in India. At the $25.7 billion valuation and with a $44 million profit last year, investors are being asked to pay $600 for every $1 in current profit
DLF offers a reminder of why sky- high valuations, whether justified or not, appear in emerging markets like India: When there is so little to begin with, there appears to be so much left to create. India's cities lack 12 million homes, according to Cushman & Wakefield, a consultancy. The firm forecasts demand for 400 townships constructed from scratch, housing 200 million people, by 2011.
The outsourcing industry, which at current rates is doubling in size every few years, needs office towers that insulate it from India's infrastructural shortcomings, like electricity cuts and faulty sewage systems.
DLF has positioned itself as a landlord to India's growth industries. When IBM announced recently that it would triple its investment in India over the next three years, to $6 billion, DLF had reason to celebrate, as IBM's main supplier of offices in India.
DLF also sells space to Microsoft, PepsiCo, Nestlé and other multinationals, and it is in talks to build Wal-Mart sites, once the retailer enters India. Wal-Mart declined to comment for this article.
Other companies are contending with DLF for the title of India's building champion, including Ansal Group, Hiranandani Developers, Unitech, Lokhandwala Group and Raheja Group. Several companies are planning stock offerings of their own.
But even those who maintain that DLF is overvalued acknowledge that market leadership is the company's to lose.
From its founding in 1946, the company has risen by using grit, political connections and a track record of betting on the trends that would transform how Indians work and live. The company's first wager was to trust Indians to buy homes on credit.
After the partition of the subcontinent in 1947, Delhi thronged with penniless refugees who had lost everything. Singh's father-in-law rented land from villagers, leased it to the refugees for a slightly higher price, and pocketed the difference. In this way, DLF built 21 neighborhoods of Delhi with minimal seed capital.
As DLF expanded into Delhi's southern suburbs, it earned a reputation for finding solutions to India's most intractable challenges. As it developed the satellite city of Gurgaon, a sea of farms just south of Delhi, acquiring land from villagers required endless numbers of signatures and permissions.
In the 1980s, Singh spent half his time in the villages, attending weddings, sharing meals in villagers' huts, becoming "like their older brother," he said. His methods won him vast quantities of land for as little as $400 an acre, or $160 a hectare, at present exchange rates. In Gurgaon today, that land sells for up to $4 million an acre.
Global companies like General Electric found that they could do back-office work in India - if provided a world- class building. The new workers in such companies began to demand homes as comfortable as their offices.
As Western values seeped into India, couples began abandoning their parents to build those homes on their own - assisted by falling interest rates. And with incomes rising, Indians began to spend their disposable income at food courts and shopping malls.
DLF caters to all rungs of an aspirational society. It sells $1 million condominiums overlooking an Arnold Palmer-designed golf course to swaggering new millionaires. To workers in the back offices of global corporations, it rents $180-a-month apartments with a pool, a park, 24-hour security, electricity backup and trash collection.
"What always occurred to me," Singh said, "was that this housing business has to be a sunrise business in a growing, democratic country like India."