Parsvnath Builders pick up 38% stake in Sabeer Bhatia's Nano City project

Parsvnath Developers recently picked up a 38% stake in Sabeer Bhatia's famed Nano city project to be built in Panchakali, Haryana, two hours from Delhi. The government of Haryana has a 10% stake in the project through HSIIDC. Sabeer Bhatia's venture into real estate finally seems to be taking off or at the least it is generating more interest from investors.

The Nano city idea was first approved, in July 2005, to be set up, in collaboration with Trident group, as a $250 million drug discovery facility in Punjab. It was expected to provide job opportunities to the engineers from the area in the fields of IT and bio-technology. The proposal was approved by the Punjab government but nothing further was heard of it.

In late 2006, the current Nano city project was kicked off in a new location - Panchakali, Haryana. The scope of the project was increased to include R&D centers and corporate offices for technology, biosciences and other knowledge industries. The project was initially estimated to be at $10 billion. 11,000 acres of land, some of it farm land, were approved by the Haryana government for the project.

In 2007, Goldman Sachs was quoted to have evinced interest in acquiring a 33% stake in the project. The fund infusion was expected to speed up the multi-year project. The funds were earmarked to help in the acquisition of the farm lands that were priced at approximately $200 million. However, that deal did not go through.

Eventually, Parsvnath developers stepped in. At present, they have 114 ongoing projects across the country. This is by far the biggest and most ambitious project in their portfolio. While they do have experience in building townships, IT parks and developing SEZs, the area of development has been less than 500 acres.

Parsvnath's financial picture is interesting. They reported ~20% and >17% increase in net revenues and EBITDA for FY '08 . They also mention that construction costs increased by almost 7% which were apparently offset by increasing real estate prices. Their latest investor update states that they are currently negotiating for FDI sponsorship of their projects.

Their balance sheet appears vulnerable to any major correction in the property markets. With their interest coverage already less than 2.0, increasing funding costs and declining demand, it seems they may have bitten off much more than they can execute with the Nano city project.. especially when there seems to be no clarity, yet, on the revenue stream from the project...