Indiabulls Real Estate Ltd Strong results and right steps, Raise PO: BoA ML

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Indiabulls Real Estate Ltd: Strong results and right steps, Raise PO



􀂄 Strong results, streamlining businesses
IBREL reported strong 2Q results with PAT at Rs500mn, 150% increase from 1Q
and ahead of our estimates of Rs320mn. The beat was due to increase in margin
to 27% from just 12.5% in 1Q. IBREL more importantly, has proposed to
restructure its holding in Indiabulls Power, in order to segregate the real estate
and power businesses into separate entities. We think this step will help unlock
value for IBREL shareholders due to reduction of holding company discount for
power business. We raise our PO by 6% to Rs247 to reflect this.

Restructuring positive for IBREL
We believe post restructuring IBREL will become a pure real estate developer and
will emerge a more focused player which would help reduce the NAV discount for
IBREL. The details for the restructuring are not available but management has
stated that the restructuring will not involve capital market fund raising. Therefore
we now value IBREL’s 58.6% stake in Indiabulls Power at current market price of
Rs31/sh against a 15% discount earlier.

Innovative offer helped pre sales
IBREL reported strong pre sales of 1.05mn sq ft with ASP of Rs27,000/sq ft at the
central Mumbai properties against our expectation of Rs20000/sq ft. The
innovative offer of just 10% upfront payment introduced by IBREL helped record
bookings in 2Q. We expect IBREL to report strong pre sales in 3Q also as the
offer continued for 10 days in the festive season in October.

Reiterate Buy with PO of Rs247
We reiterate our Buy rating with PO of Rs247 based on 15% discount to our real
estate NAV, offering potential upside of 18%. We believe the approval of higher
FSI for Worli project (potential upside of Rs16 to our NAV) and successful
business restructuring will lead to NAV upgrades.