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Indiabulls Real Estate (IBREL)
Property
Strong sales, power business de-merger approved. IBREL reported revenues of Rs4
bn in 3QFY11 versus Rs3 bn in 2QFY11 on increasing revenue recognition from
ongoing residential projects. Residential sales of 2.27 mn sq. ft in 3QFY11 is an all-time
high though realization per sq. ft dropped significantly due to absence of super
premium sales (Central Mumbai). IBREL board has approved the demerger of the power
business. We retain our RS rating and target price is under review.
3QFY11 results reflect increasing revenue recognition
IBREL reported revenues of Rs4 bn in 3QFY11 vs Rs3 bn in 2QFY11 (+33%) and Rs375 mn in
3QFY10 (+967%). EBITDA margins expanded 367 bps to 30.7% in 3QFY11 vs 27.1% in 2QFY11.
Net profit came in at Rs766 mn (+51% qoq, +2,672% yoy). IBREL is on track to exceed its annual
revenue guidance of Rs10.3 bn with Rs8.7 bn booked in 9MFY11. Approx. 45% (7.68 mn sq. ft)
of area under construction has been pre-sold (44% in 2QFY11), indicating qoq revenue growth
will continue with recognition on a part of the balance 55% happening as soon as they are
booked as sales.
Sales of 2.27 mn sq. ft is the highlight of this quarter
While 2QFY11 witnessed the highest sales value, in 3QFY11 IBREL has sold its highest volume of
2.27 mn sq. ft versus 1.84 mn sq. ft in 2QFY11. Sales value of Rs8.7 bn in 3QFY11 is substantially
lower than 2QFY11 sales of Rs31 bn due to absence of sales in super premium locations (Central
Mumbai). IBREL has also leased an additional 253,739 sq ft in 3QFY11 (110,000 in 2QFY11),
bringing the total leased space to 1.41 mn sq. ft.
Board approves the demerger of the power business
The board has approved the demerger of the power business (Indiabulls Power Ltd) in which IBREL
holds 58.6% stake subject to shareholder approval and sanction from the Delhi High Court. IBREL
shareholders will get 2.95 shares of Indiabulls Infrastructure and Power Ltd (IIPL) for every 1 share
of IBREL and IIPL will get listed through the demerger scheme. IIPL will hold 58.6% in Indiabulls
Power Ltd. Indiabulls Power has a total capacity of 2,700 MW under construction at Nashik and
Amravati.
IBREL has booked sales of 2.27 mn sq. ft in 3QFY11 vs 1.84 mn sq. ft in 2QFY11. Total area
sold is about 45% of the total area under construction. While sales value has declined
qoq to Rs8.7 bn versus Rs31 bn in 2QFY11, this is due to sales in locations other than
Central Mumbai. We find the 23% increase in sales volume as a key positive given
absorption concerns.
Total area under construction increased to 17.2 mn sq. ft in 3QFY11 vs 14.7 mn sq. ft in
2QFY11 with residential construction increasing to 15.4 mn sq ft (12.4 mn sq. ft in
2QFY11) and commercial area under construction falling to 1.8 mn sq. ft due to handover
of 0.55 mn sq. ft in 3QFY11.
Overall land owned by IBREL for which construction has not started has increased to
3,111 acres vs 3,084 acres in 2QFY11 (48 acres acquired and 21 acres put under
development in 3QFY11).This comprises (1) residential area which has gone up to 514
acres versus 487 acres as of end-2QFY11, (2) commercial area of 46 acres and (3) SEZ
area of 2,551 acres.
Balance sheet: IBREL has paid Rs21.5 bn for land acquisition, including Bharat and
Poddar Mills at Worli (10.8 acres) and 37.6 acres across Panvel, NCR and Chennai. On the
liabilities side, key change is ‘loans from others’ which has increased 3.4X qoq to Rs21.9
bn versus Rs5 bn in 2QFY11. We do not know the interest cost but it is credible that
IBREL has managed to raise debt in this current tough environment. Consolidated balance
sheet also shows Rs3 bn of share warrants of subsidiary companies. On the assets side,
compared to 2QFY11, fixed assets are up to Rs25.4 bn (versus Rs14.3 bn) while
inventories are up 78% to Rs47.6 bn versus Rs26.7 bn (addition of NTC land), even as
sundry debtors up 48% and cash is down 18%.
Value of listed entities is 76% of current market capitalization
Value implied by the current market prices of the two listed entities (IPIT and IBPOW) in
which IBREL holds stakes (even after assuming a 20% holding company discount) is worth
Rs93/share. Also, given IBREL’s restructuring scheme, IBREL shareholders will get direct
shares in IBPOW post the current restructuring
Retain NAV calculation at Rs289/share
Our NAV comprises Rs111 for real estate development, Rs41 for cash and equivalents
(excluding cash in the power business, including land payment for NTC mill land as we are
valuing them at book value), Rs87 from power business and Rs50 on account of Indiabulls
Properties Trust (Singapore REIT).
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