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Indiabulls Real Estate
Overweight
INRL.BO, IBREL IN
Earnings and operations surprise consistently on the
upside... but share price on the downside
IBREL today reported its third straight quarter of positive earnings surprise.
Operating performance on most counts — sales/leasing/execution — remains
decent. Despite this, the company’s stock price over the same period has
fallen 32%. (-40% from recent highs). This, in our view, is partly driven by
overall macro (political, inflation) headwinds and certain local issues (review
of FSI policy by Maharashtra government). Adjusting for FY10 dilution
@Rs185, the stock price is at the lower range of its post Lehman trading
range (Rs80-100). This, despite the company having minimal B/S stress and
demonstrable execution on key assets (Lower Parel and Panvel).
While overall negative sentiment may continue to weigh on the share price in the
near term, we believe eventually the market should start discounting the
earnings ramp up. Adjusted for the power business, IBREL’s core RE is
available at FY12/13E P/B of 0.3x and FY12/13 P/E of 5.2x/3.6...CHEAP.
• Earnings brief: IBREL reported 3QFY11 net income of Rs766MM (+51%
Q/Q) and 35% ahead of our estimate of Rs566MM. Earnings beat was
primarily driven by higher-than-expected revenues of Rs4B (JPMe- Rs3.5B)
and improved margins (31% vs. JPMe – 25% & 2Q – 27%). Lower
employee costs (-36% Q/Q) and financial expenses (-85% Q/Q) also aided
reported 3Q earnings. We note that IBREL has already achieved 85% of its
full-year FY11 revenue guidance of Rs10.2B.
• Operational performance remains healthy: Sales bookings in 3Q10 stood
at Rs8.7B, thereby taking the overall o/s order book to Rs57B. Bookings
during the Q were primarily driven by the Panvel project (post the clearance
of the Navi Mumbai airport). Interestingly, no cancellations were reported
on account of 10:90 scheme in Lower Parel and the company, we believe,
had built in some buffer on this account earlier. Leasing, too, has improved
with overall leasing at 1.4 msf (+0.25 msf in 3Q). Area under construction,
too, has increased by ~3 msf to 17.2 msf.
• Total net debt for RE business increased by Rs18B on account of Rs21.5B
land payments for Worli and other (Panvel/Gurgaon/Chennai) land parcels.
Adjusting for land purchase, total FCF generation during 3Q was at Rs3.6B.
Please refer to the table inside for the pro forma highlights of 3Q B/S sheet.
• We revise our Mar-12 SOTP based PT to Rs230 (vs. Rs273 earlier) as we
factor in power business restructuring and warrant issuance. However, our
earning estimates are revised upwards by 40%/9% on the back of betterthan-expected pre sales in its mid income projects
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