The DB Realty stock hit the upper circuit on Monday touching ₹89.60, on reports that Adani Realty is in merger talks with the company. Could there finally be some light at the end of tunnel for DB Realty?

It has been a downhill ride for DB Reality IPO investors since its listing in 2010. The stock has traded below its IPO price of ₹468 for almost its entire time in the bourses and Monday’s price of ₹89.60 represents wealth erosion of 80 per cent for the IPO investors.

Within months of listing, both broader market issues and promoters getting embroiled in 2G investigations left a lasting scar on the company.

While there were short bursts of attempts in turning around, like the one in 2012 when the late investor Rakesh Jhunjhunwala bought a stake in the company, all of them have turned out to be false positives till now. Will this time be different ?

DB Realty is Mumbai metropolitan region (MMR) focussed luxury real estate developer. Its top projects are in the heart of the financial capital.

DB Ozone, a 25-building residential project is expected to be completed by FY23. Along with Prestige Group, the company has secured all approvals for two commercial towers at Mahalaxmi Mumbai.

Another commercial venture, BKC 101 at Bandra Kurla Complex, with Prestige Realtors is underway. Partnering Adani GoodHomes, a 5-acre residential complex is being planned as well. The listed developer is currently valued at ₹2,590 crore.

Weak financial metrics

DB Realty has shored up its finances to capitalise itself for the pending ventures, raising ₹1,500 crore in March-2022 through convertible warrants to promoters and investors, including the late Rakesh Jhunjhunwala. But the company has reported weak financial metrics at the end of FY22 with debt-equity ratio at 1.85x and operating losses.

The company is currently valued at 1.23x its book value in June-22 after being valued at less than the book in the last five years.

Its peer Godrej Properties, which also has high exposure to MMR, is valued at 4.68x its book value. The company reported revenues of ₹219 crore with EBITDA margin of negative 34 per cent in FY22 with FY19 being the last year of EBITDA profitability.

Legal troubles

Since the 2G allocation scam, the company has been beset by legal troubles. After key personnel were acquitted of 2G related charges in December 2017, and an order in favour of release of properties attached by Directorate of Enforcement (ED) passed, the CBI and ED still have a stay order against the release of properties.

Income Tax Department conducted raids in the current financial year on the premises of the company and its key management personnel.

Under a filing with National Company Law Tribunal, assets of DB Crown had to be transferred to its JV partner, which is delayed on account of Covid-19 as per the company.

WIth several legal woes continuing to have an overhang on the stock, it could gain from a change in ownership.