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4Q11 results surprised us on the topline but EBITDA margin contraction of 1340bps qoq,
high interest cost and tax rate cumulatively resulted in an earnings disappointment.
Promoters increasing stake and the proposed de-merger of IBPOW are positive catalysts.
Retain Buy on attractive valuations
4Q11: Revenues surprise but OPM contraction leads to earnings disappointment
IBREL reported 4Q11 revenues of Rs5.6bn (+40% qoq) which was 23% ahead of our
revenue forecast of Rs4.6bn. IBREL sold 1.2msf during the quarter led largely by projects
in Gurgaon, Panvel and Chennai. This compares to 0.8msf in 4Q10 and 2.3msf in 3Q11
(festive season). EBITDA margin came in at 17.3% compared to 30.7% in the last quarter
which was the key factor responsible for the negative earnings surprise. The key reason
for the lower EBITDA margin was the lower contribution from the high margin Panvel
project as sales volume had come off its peak and was lower than the last few quarters
due to the high property prices. However, the company has taken corrective steps and
has cut prices by about 10% to Rs4,000psf to induce volume. Management has also
stated that it expects steady state EBITDA margin of 25% going forward. The increase in
debt has resulted in interest expense coming in higher at Rs465m vs. Rs2m in 4Q10 and
Rs18m in 3Q11. Tax rate was also high at 50.4%. Overall, the company reported PAT of
Rs117m, 85% lower qoq. Indiabulls Wholesale Services Ltd (IBWSL) was de-merged on
31-March-2011.
Promoters raising stake and the proposed de-merger of IBPOW augurs well
The promoters continue to raise their stake - increasing it from 16.7% in December 2009 to
18.3% in March 2010 and then to 22.9% in March 2011. During this month, the promoters
have further increased their stake by 2.6% to 25.6%. This should mitigate concerns about low
promoter ownership resulting in a high free float, in our view.
The proposed de-merger of Indiabulls Power (IBPOW) should unlock value for IBREL's
shareholders in our view. Valuing the power business at Rs52.5/share (applying a 20%
holding company discount to IBPOW's current stock price), IBREL's stock price implies its
real state business being valued at Rs72/share vs. our valuation of Rs118/share.
Other updates
Total leased area as of end-4Q11 was 1.61msf vs. 1.41msf as of end-3Q11
Area under construction has reduced to 17.04msf in 4Q11 from 17.19msf in 3Q11 due to the
hand over of 0.65msf of commercial space in 4Q.
There has been a marginal increase in net debt of IBREL (ex-power) on a sequential basis -
increasing from Rs21.0bn as of end-3Q11 to Rs21.5bn as of end-4Q11.
IBREL has stated that it expects IBPOW's debt to increase in FY12 due to execution and
building up of power plants at Nashik and Amravati
IBREL's Board of Directors has recommended a dividend of Rs0.30 for FY11.
Financial closure for Amravati Phase II was achieved last quarter. With this all four projects
aggregating 5400MW have achieved financial closure
The stock exchanges have granted their 'No Objection' certificate to the proposed de-merger
of IBPOW. Approval now needs to be obtained from shareholders, creditors and Delhi High
Court. The appointed date of de-merger is April 1,2011. It is expected that obtaining all the
approvals could take about 3-6 months
IBREL is attractively priced, in our view; maintain Buy
We derive our SOTP target price of Rs180 by valuing: 1) Rs118/sh for real estate (post a 15%
discount to GAV), and 2) Rs62/share for the 58.6% stake in IBPOW (post a 20% holding
company discount). We retain our Buy rating on the stock as: 1) we expect financial
performance to gain traction; 2) proposed de-merger of power business should unlock value;
and 3) attractive valuations.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
4Q11 results surprised us on the topline but EBITDA margin contraction of 1340bps qoq,
high interest cost and tax rate cumulatively resulted in an earnings disappointment.
Promoters increasing stake and the proposed de-merger of IBPOW are positive catalysts.
Retain Buy on attractive valuations
4Q11: Revenues surprise but OPM contraction leads to earnings disappointment
IBREL reported 4Q11 revenues of Rs5.6bn (+40% qoq) which was 23% ahead of our
revenue forecast of Rs4.6bn. IBREL sold 1.2msf during the quarter led largely by projects
in Gurgaon, Panvel and Chennai. This compares to 0.8msf in 4Q10 and 2.3msf in 3Q11
(festive season). EBITDA margin came in at 17.3% compared to 30.7% in the last quarter
which was the key factor responsible for the negative earnings surprise. The key reason
for the lower EBITDA margin was the lower contribution from the high margin Panvel
project as sales volume had come off its peak and was lower than the last few quarters
due to the high property prices. However, the company has taken corrective steps and
has cut prices by about 10% to Rs4,000psf to induce volume. Management has also
stated that it expects steady state EBITDA margin of 25% going forward. The increase in
debt has resulted in interest expense coming in higher at Rs465m vs. Rs2m in 4Q10 and
Rs18m in 3Q11. Tax rate was also high at 50.4%. Overall, the company reported PAT of
Rs117m, 85% lower qoq. Indiabulls Wholesale Services Ltd (IBWSL) was de-merged on
31-March-2011.
Promoters raising stake and the proposed de-merger of IBPOW augurs well
The promoters continue to raise their stake - increasing it from 16.7% in December 2009 to
18.3% in March 2010 and then to 22.9% in March 2011. During this month, the promoters
have further increased their stake by 2.6% to 25.6%. This should mitigate concerns about low
promoter ownership resulting in a high free float, in our view.
The proposed de-merger of Indiabulls Power (IBPOW) should unlock value for IBREL's
shareholders in our view. Valuing the power business at Rs52.5/share (applying a 20%
holding company discount to IBPOW's current stock price), IBREL's stock price implies its
real state business being valued at Rs72/share vs. our valuation of Rs118/share.
Other updates
Total leased area as of end-4Q11 was 1.61msf vs. 1.41msf as of end-3Q11
Area under construction has reduced to 17.04msf in 4Q11 from 17.19msf in 3Q11 due to the
hand over of 0.65msf of commercial space in 4Q.
There has been a marginal increase in net debt of IBREL (ex-power) on a sequential basis -
increasing from Rs21.0bn as of end-3Q11 to Rs21.5bn as of end-4Q11.
IBREL has stated that it expects IBPOW's debt to increase in FY12 due to execution and
building up of power plants at Nashik and Amravati
IBREL's Board of Directors has recommended a dividend of Rs0.30 for FY11.
Financial closure for Amravati Phase II was achieved last quarter. With this all four projects
aggregating 5400MW have achieved financial closure
The stock exchanges have granted their 'No Objection' certificate to the proposed de-merger
of IBPOW. Approval now needs to be obtained from shareholders, creditors and Delhi High
Court. The appointed date of de-merger is April 1,2011. It is expected that obtaining all the
approvals could take about 3-6 months
IBREL is attractively priced, in our view; maintain Buy
We derive our SOTP target price of Rs180 by valuing: 1) Rs118/sh for real estate (post a 15%
discount to GAV), and 2) Rs62/share for the 58.6% stake in IBPOW (post a 20% holding
company discount). We retain our Buy rating on the stock as: 1) we expect financial
performance to gain traction; 2) proposed de-merger of power business should unlock value;
and 3) attractive valuations.
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