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UBS Investment Research
Indiabulls Real Estate
Valuations offer a safety margin
[ EXTRACT]
Correction seems overdone
The share price has corrected 25% over the past 15 days on news of: 1) a lacklustre Q4
FY11 on higher construction and interest costs along with poor disclosure; 2) a sharp
fall in Mumbai pre-sales, particularly central Mumbai; and 3) a lack of clarity on higher
FSI in the public parking scheme. We think this is overdone and there is value at a 61%
discount to our sum-of-the-parts NAV of Rs300.00.
Operational momentum building
Although pre-sales slowed to 1.2msf in Q4, momentum is picking up and we expect 7-
8msf pre-sales in FY12E (6msf sold in FY11). Leasing was healthy for prime Mumbai
assets at 0.2msf in Q4 (1.61msf leased YTD). Construction grew marginally to 17.7msf
at end-FY11. The 58.6%-owned power subsidiary is also progressing well with
financing achieved for 5,400MW, and ownership restructuring approval by the stock
exchange and other approvals underway.
Deep value despite risks
We think the share price values only: 1) 45% share in IPIT assets (Rs68); 2) NTC mill
land acquisition (Rs31); and 3) a substantial holding company discount for its 58.6%
stake in the power sub. Furthermore, its relatively low leveraged balance sheet (0.1x)
and other paid land reserves of c200msf make it inexpensive in a rising asset price
environment.
Valuation: lower price target from Rs189.00 to Rs180.00
With the discount at peak levels to our base NAV estimate, the stock at a 35% discount
to our bear-case NAV and 0.5x P/BV in FY11E, we believe valuations are attractive.
Our new price target, based on a lower NAV estimate of Rs300, factors in a higher
WACC of 15%.
Indiabulls Real Estate
Indiabulls Real Estate Limited (IBREL), which was de-merged from Indiabulls
Financial Services Limited, is one of the largest listed real estate companies in
India and a leading national player across multiple realty and infrastructure
sectors. Its projects cover a total land area in excess of 10,000 acres. IBREL
projects include high-end office and commercial spaces, premium residential
developments, integrated townships, luxury resorts and special economic zones.
IBREL has entered into partnerships with internationally renowned consultants
and construction companies to develop its projects.
Statement of Risk
We believe key risks for real estate companies include a prolonged higher
interest rate environment (one+year), higher mortgage rates impacting consumer
affordability, slower annual GDP growth of <7% impacting demand for
residential and commercial properties, changes in foreign direct investment
regulations impacting capital availability for the sector, changes in regulatory
policies impacting commercial viability of development, and inflation impacting
consumer affordability.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Indiabulls Real Estate
Valuations offer a safety margin
[ EXTRACT]
Correction seems overdone
The share price has corrected 25% over the past 15 days on news of: 1) a lacklustre Q4
FY11 on higher construction and interest costs along with poor disclosure; 2) a sharp
fall in Mumbai pre-sales, particularly central Mumbai; and 3) a lack of clarity on higher
FSI in the public parking scheme. We think this is overdone and there is value at a 61%
discount to our sum-of-the-parts NAV of Rs300.00.
Operational momentum building
Although pre-sales slowed to 1.2msf in Q4, momentum is picking up and we expect 7-
8msf pre-sales in FY12E (6msf sold in FY11). Leasing was healthy for prime Mumbai
assets at 0.2msf in Q4 (1.61msf leased YTD). Construction grew marginally to 17.7msf
at end-FY11. The 58.6%-owned power subsidiary is also progressing well with
financing achieved for 5,400MW, and ownership restructuring approval by the stock
exchange and other approvals underway.
Deep value despite risks
We think the share price values only: 1) 45% share in IPIT assets (Rs68); 2) NTC mill
land acquisition (Rs31); and 3) a substantial holding company discount for its 58.6%
stake in the power sub. Furthermore, its relatively low leveraged balance sheet (0.1x)
and other paid land reserves of c200msf make it inexpensive in a rising asset price
environment.
Valuation: lower price target from Rs189.00 to Rs180.00
With the discount at peak levels to our base NAV estimate, the stock at a 35% discount
to our bear-case NAV and 0.5x P/BV in FY11E, we believe valuations are attractive.
Our new price target, based on a lower NAV estimate of Rs300, factors in a higher
WACC of 15%.
Indiabulls Real Estate
Indiabulls Real Estate Limited (IBREL), which was de-merged from Indiabulls
Financial Services Limited, is one of the largest listed real estate companies in
India and a leading national player across multiple realty and infrastructure
sectors. Its projects cover a total land area in excess of 10,000 acres. IBREL
projects include high-end office and commercial spaces, premium residential
developments, integrated townships, luxury resorts and special economic zones.
IBREL has entered into partnerships with internationally renowned consultants
and construction companies to develop its projects.
Statement of Risk
We believe key risks for real estate companies include a prolonged higher
interest rate environment (one+year), higher mortgage rates impacting consumer
affordability, slower annual GDP growth of <7% impacting demand for
residential and commercial properties, changes in foreign direct investment
regulations impacting capital availability for the sector, changes in regulatory
policies impacting commercial viability of development, and inflation impacting
consumer affordability.
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