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INRL.BO, IBREL IN
2QFY11 results: Earnings gain momentum. Operational performance continues to improve - ALERT
• 2Q FY11 earnings gain traction: IBREL reported 2Q FY11 net income
of Rs509MM (up 152% Q/Q), significantly above our and street
expectations. Percentage-of-completion recognition of sales has started
to flow through and this should accelerate going ahead. In our view,
IBREL’s FY11 revenue guidance of Rs10.2B does not seem aggressive
given Rs4.7B achieved in 1H (2Q revenues at Rs3B).
• Sales/leasing both show improvement: Sales bookings in 2Q10
improved materially with Rs31B (1.8msf) getting booked during the Q.
Sales in Lower Parel sky suites project (+350 units sold) was the
primary driver. Overall, the order book currently stands at Rs48B. Of the
total, we estimate IBREL’s share at Rs28B. Leasing, too, has picked up
with an additional 0.1 msf getting leased in 2Q, taking the total leased
space to 1.16 msf. Overall in Lower Parel, IBREL has delivered 1.9msf
of office space and expects to deliver another 1.4 msf by FY11 end.
• Highlights from IPIT 2Q report: Rental income for Sep-Q has
improved 3x over last year to S$17MM. Book value came down
marginally by 5% over Mar-10 to S$1877MM (primarily on FX).
• Balance sheet details: Analyzing the pro-forma 2Q IBREL balance
sheet (after stripping out power business), we find: 1) cash balance has
come down marginally by Rs1.7B and loan advances have gone up by
Rs1.4B, implying some land acquisitions; 2) inventory has gone up by
Rs2.1B on account of some construction progress, with the area under
construction at 14.7msf; 3) current liabilities have gone up by Rs2.2B,
most likely on account of increase in customer advances; 4) inflow from
warrant issuance is Rs1.2B (28MM warrants issued at Rs165/share).
• Restructuring of power business proposed: IBREL’s board has
proposed a spin-off of the power business from the parent company. In
our view, this is a positive as it: 1) allows the separation of business with
separate risk/rewards (RE/Power); and 2) simplifies the consolidated
financial accounts. Further, warrant issuance of 420MM shares in IB
Power to IBREL at Rs29/share has been approved. Post conversion, this
will increase IBREL’s stake in IB Power to 65.7% from 58.6% currently.
• Investment view: IBREL, in our view, is one of the cheapest property
stocks in India. The company is trading below its book value of
Rs235/share. The book in IBREL’s case is reasonably well defined. The
stock has meaningfully underperformed the index (by 15% YTD). This is
despite improvement in operational performance (sales/leasing) at its key
projects (Lower Parel).
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