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Indiabulls Real estate (IBREL) has received a Board of Directors approval for issuing 2.95 shares
of Indiabulls Power (IBPOW) for every 1 share held - resulting in value of real estate at Rs
42.8/sh (based on todays closing price of IBREL at Rs 118.4/sh and IBPOW at Rs 25.65/sh)
making IBREL look attractive on valuations.
Event - Indiabulls Real estate (IBREL IN, Buy) which owns 58.6% in Indiabulls Power
(IBPOW IN, Non rated) has received a Board of Directors approval for issuing 2.95 shares
(worth Rs 75.6 at todays closing price of Rs25.65/ shares) for every 1 share in IBREL held (as
per the independent and the fairness opinion by SEBI registered valuer) based on the
recommendation of the restructuring committee to restructure power and infrastructure
business of the company. This is subject to shareholder, creditors and court approval, as per
the notification filed by IBREL in the Bombay Stock exchange
Analysis - We highlight that we have a Buy rating with on IBREL with Target Price of Rs
250/share on a SOTP basis - Rs 183/ share for "real estate" and Rs 67/share (after
considering 20% holding discount at then market prices of Rs 28.5/share) for "Power". The
de-merger newsflow (expressed by company in mid- October 2010) had seen pressure on
stock price (due to expectations of excess supply) of Indiabulls Power (stock declined from Rs
30/share to Rs 27.75/share and now to Rs 25.65).
Thus assumming current closing stock price of Indiabull Power and allocating 20% discount
(assuming the stock might see further pressure), the power business could be valued at Rs
61/share. Thus the resultant value of real estate business at Rs 57.5/share (as the todays
closing price of IBREL at Rs 118.4/share - stock has decline 39% over the last 3months) vs
our estimates for Rs 183/share for real estate business.
This makes IBREL looks attractive on valuations as it would unlock value of its power
business for IBREL shareholders. Also, the demerger would result in two separate business
in separate entities which in turn would also help in simpler structure, better analysis and
better corporate governance
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