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Indiabulls Real Estate Limited
(INRL.BO / IBREL IN)
RESULTS
3Q FY11: Good progress on project execution and value unlocking
■
Strong revenue recognition in 3Q FY11. IBREL reported strong 3Q FY11
results as PAT after minorities went up 51% QoQ to Rs766 mn. Revenue at
Rs4 bn witnessed strong 33% QoQ growth indicating strong execution on
the projects. EBITDA margins improved 367 bps QoQ to 30.7%. The
company has achieved revenue recognition of Rs8.7 bn in 9M FY11 and
appears well on course to exceed the set target of Rs10.3 bn for FY11. EPS
for the quarter stood at Rs1.9 (compared to Rs1.3 in 2Q FY11).
■
Robust sales bookings. IBREL sold 2.3 mn sq ft in 3Q FY11 compared to
1.8 mn sq ft in 2QFY11. Out of 2.3 mn sq ft, 50% of the area was sold in
Panvel projects and the remaining 50% was on account of value housing
projects across different locations. Value of sales bookings stood at
Rs8.7 bn in 3Q FY11 compared to Rs31 bn in 2Q FY11. Some 48 acres of
land was acquired during 3Q FY11 for a consideration of Rs21.5bn.
■
Power business restructuring to unlock value. IBREL intends to transfer
its 58.6% holding in Indiabulls Power to a wholly owned subsidiary,
Indiabulls Infrastructure and Power Ltd (IIPL). Every IBREL shareholder will
be entitled to 2.95 shares in IIPL, which will then get listed providing an exit
option to shareholders. At Indiabulls Power’s current price, this restructuring
implies a power valuation of Rs77.3 per share of IBREL. IIPL is likely to
trade with a holding company discount and an assumption of a 35% discount
would imply value unlocking only to the extent of Rs50.2/share. The residual
value of IBREL at the current price is Rs72.3/share, implying the stock
trades at a 63% discount to our Mar 2011 real estate NAV of Rs193/share.
■
Valuation: IBREL is trades at a 52% discount to its March 2011 NAV of
Rs250 per share. We maintain our OUTPERFORM on the stock on account
of potential value unlocking from power business restructuring.
3Q FY11 – Strong revenue
recognition on real estate projects
Indiabulls Real Estate reported strong 3Q FY11 results as PAT after minorities went up
51% QoQ to Rs766 mn. Revenue at Rs4 bn witnessed strong 33% QoQ growth indicating
strong execution on the projects. EBITDA margins improved 367 bps QoQ to 30.7% in
3Q FY11 compared to 27.1% in 2Q FY11.
The company achieved revenue recognition of Rs8.7 bn in 9M FY11 and appears well on
course to exceed management’s revenue recognition target of Rs10.3 bn for full-year
FY11. The tax rate realisation has remained high over the past two quarters, as it stood at
40.6% and 43.8% in 3Q FY11 and 2Q FY11, respectively. EPS for the quarter stood at
Rs1.9 (compared to Rs1.3 in 2Q FY11) and at Rs3.7 for 9M FY11.
Strong growth in sales bookings continues
IBREL sold 2.3 mn sq ft in 3Q FY11 compared to 1.8 mn sq ft in 2Q FY11. Out of 2.3 mn
sq ft, 50% of the area was sold in Panvel projects and the rest went on value housing
projects across different locations. Value of sales bookings stood at Rs8.7 bn in 3Q FY11
compared to Rs31 bn in 2Q FY11. Average realisation stood at Rs3,824 per sq ft in 3Q
FY11 compared to Rs16,842 per sq ft in 2Q FY11 on account of bookings in Indiabulls
Power Investment Trust (IPIT) super premium residential projects.
Total area under construction as of December 2010 stood at 17.2 mn sq ft (including IPIT),
of which 15.4 mn sq ft was residential (including 3.3 mn sq ft of IPIT super premium
residential projects) and 1.8 mn sq ft was commercial (including 0.85 mn sq ft of IPIT
commercial projects). Net area under construction increased by 2.5 mn sq ft in 3Q FY11
(3.05 mn sq ft of area was added to construction and 0.55 mn sq ft of commercial area
was handed over).
Landbank update – 48 acres added
IBREL acquired 48 acres of land during 3Q FY11 for a consideration of Rs21.5 bn. Of this,
Rs20.5 bn was paid for the 10.8 acres of Worli land and Rs1 bn for 37.6 acres across land
parcels contiguous to ongoing projects in Panvel, NCR and Chennai. The total area under
development increased by 2.4 mn sq ft to 29.5 mn sq ft on account of a gross addition of
2.9 mn sq ft in area from the landbank and handing over of 0.55 mn sq ft of commercial
space
Area under development of 59.5 mn sq ft comprised 6.35 mn sq ft of super premium
projects, 25 mn sq ft of premium projects with the remaining 28.2 mn sq ft being midincome
projects.
Balance sheet – net cash to net debt
Net consolidated cash on hand as of December 2010 was Rs3.0 bn down from
Rs24.2 bn QoQ. Excluding the IBPOW net cash of Rs11.4 bn, IBREL became a net debt
company with Rs8.5 bn of net debt versus Rs9.3 bn in net cash as of September 2010.
The increase in debt was primarily on account of the Rs21.5 bn payment for the Worli and
other land acquisitions, offset by a temporary Rs6 bn increase in current liabilities. As the
dues to suppliers and creditors are paid off, we expect the net debt to increase further in
4Q FY11.
Indiabulls Power
Indiabulls Power reported 3Q FY11 PAT after minority of Rs2.8 mn (compared to Rs4 mn
in 2Q FY11 and Rs88 mn in 3Q FY10). Operating income of Rs4 mn was recognised.
Update on power projects
Some 5,400 MW of power capacity is under execution under Phase I and II of Nashik and
Amravati, and construction is progressing steadily. Gross debt increased by Rs6.4 bn
during the quarter and stood at Rs7.2 bn (of which Rs4.25 bn has been drawn down for
Amravati Phase I and Rs3bn drawn down for Nashik Phase I. The company achieved
financial closure of Phase II of Nashik during the quarter.
Proposed power business
restructuring to unlock value
IBREL and Indiabulls Power’s boards have recently approved the demerger of the power
business and the following scheme has been filed with the exchanges per the following
scheme:
■ IBREL will transfer its power business regarding its 58.6% holding in Indiabulls Power
to a wholly owned subsidiary, Indiabulls Infrastructure and Power'
■ In consideration of the transfer, every shareholder of IBREL will get 2.95 shares in
Indiabulls Infrastructure and Power
■ Indiabulls Infrastructure and Power will then get listed on the exchanges, providing exit
option to the shareholders
■ The scheme requires shareholder, creditors and High Court approval and hence will
likely take ~9 months to be completed. The scheme will be effective from 1 April 2011
and the record date for determining the name of the shareholders will be announced at
a later date by IBREL.
What this means for shareholders:
■ Every shareholder will effectively get 2.95 shares of Indiabulls Power indirectly through
their holding in Indiabulls Infrastructure and Power. At the current market price of
Rs26.2 of Indiabulls Power, this implies a value of Rs77.3 per share of IBREL
■ Since Indiabulls infrastructure and Power will be a holding company listed on the
exchange, and given the overhang of investors selling shares for unlocking value, it is
likely to trade with a holding company discount. An assumption of a 35% holding
company discount would mean that shareholders of IBREL will only be able to unlock
value to the extent of Rs50.2/share against Rs77.3/share of implied value from
Indiabulls Power.
■ After this value unlocking, the residual value of IBREL at the current market price of
Rs122.5 would be Rs72.3/share. This would mean a market cap of Rs29.1 bn. Against
this, IBREL:
(1) has spent Rs20.5 bn on 10.8 acres Worli land acquisition with an estimated
development potential of 1.7mn sq ft.
(2) holds ~51% effective interest in IPIT projects totalling a development potential of
7.1mn sq ft in Central Mumbai; and
(3) has spent Rs18-20 bn on 50.7 mn sq ft of projects under planning and
development and 3,111 acres of land intended for future development
Our NAV on real estate projects (including net cash of Rs47 per share as of September
2010) is Rs193/share, implying that the stock trades at a 63% discount to the NAV.
Valuation – Maintain OUTPERFORM
IBREL is trading at a 52% discount to its March 2011 NAV of Rs250 per share. We
maintain our OUTPERFORM on the stock as we expect value unlocking on account of
power business restructuring. Further, strong revenue recognition indicates good progress
on its projects and is expected to improve going forward leading to stronger earnings
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