But first, a little history
The company was conceptualised during the disinvestment exercise of VSNL (later known as Tata Communications) back in 2002 by the government. Naturally, the terms of the disinvestment required a separate value to be ascribed to lands which were going to be retained with VSNL and subsequently demerged into a separate entity. Panatone, a Tata group company, won the disinvestment bid. However, the fate of Hemisphere Properties was left in doldrums for a long time after that. This was primarily due to the burden of a capital gains tax on the shoulders of the Tata Group that they were to pay upon transferring the surplus land to Hemisphere Properties. Back in the day, the benefit of tax neutrality was not applicable to the companies which ceased to belong to the public sector as a result of divestment.
Finally, in 2016-17, the tax laws changed, the scheme of demerger got approved, and in October 2020, the company got listed. The existing shareholders of Tata Communications suddenly saw Hemisphere Properties shares in their demat and were left wondering what it was that the company did exactly? And whether to sell those shares, or, buy more?
The business side of things
Well, we could go on and on about the business aspects of this company but there's just one little problem. As of today, it doesn't really do anything. However, it does have land parcels of around 740 acre across four major cities - Delhi (Greater Kailash: 69.46 acre, Chattarpur: 58 acre), Pune (524 acre), Chennai (53.04 acre) and Kolkata (35.19 acre). The company also has an in-principle approval of Rs 751 crore from the Ministry of Finance for the payment of stamp duty on transfer of title of its lands. While a sum of Rs 700 crore is to be infused in the form of equity, the rest will come as loan at a 10 per cent interest rate. Currently, the company is in the process of taking possession of various land parcels and intends to either develop them going forward or carry out an outright sale.
Who is running the show?
The Indian government currently holds 51.1 per cent stake in the company, while the Tata Group holds around 23 per cent (rest is public). Eventually, the Tata Group will be transferring its shares to the public, bringing down its own holding to around 3 per cent of the company. The company is headed by Ms D Thara, an IAS who's also a joint secretary to the Ministry of Housing and Urban Affairs. Her experience in urban development is likely to come in handy while running the company's operations.
What's the company worth? Rs 3,800 crore or Rs 19,000 crore?
After getting listed at Rs 106 in October 2020, the company's stock price almost halved in less than a month. However, it has recovered swiftly since then and currently trades at 30 per cent above its listing price. At the current price, the company's valuation comes to around Rs 3,800 crore. However, in its recent annual general meeting, the management highlighted that per the prevailing circles rates, the valuation of land parcels owned by the company comes out to Rs 19,000 crore. Well, that's a steep discount. Is there something we are missing? Probably yes.
Except for two land parcels (Chattarpur and Kolkata), the rest are tied up in litigation. Further, years of ignorance has led to encroachment of land parcels as well. Almost 70 per cent of the land (524 acre) is in Pune, adjacent to the Defence establishment. Developing this property may require clearances from the Ministry of Defence which may delay the execution work. Additionally, the company may need land-use changes for development of various other projects. The legal and other hiccups mentioned above can continue to linger on for years, affecting the company's business. And considering all the factors, putting a valuation to the business is truly anybody's guess.