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We expect IBREL's sales momentum to remain muted in the near to medium term given weak
sentiment and headwinds in Mumbai. However, we see shareholders gaining value from IBREL's
power business demerger – likely to be effective by October-December 2011. We cut our TP to
Rs120, but maintain Buy.
Sales volumes to remain muted due to weak sentiment and headwinds
IBREL’s sales momentum in its mid-income projects in Panvel, Gurgaon and Chennai has
softened, while that of its luxury projects in central Mumbai (like Sky and Bleu) has become very
slow. Further, July 2011 data released by Prop Equity, a primary and secondary market
database, indicates that the Mumbai market (IBREL’s major market) continues to face weak sales
volumes as high property prices and mortgage rates cripple demand. The market continues to
have a low absorption rate (5%) due to the spike in residential property prices. We note that
IBREL’s promoters increased their stake to 28% as of 30 June 2011, increasing it by 5ppt qoq.
Power demerger, likely to be effective by October-December 2011, to unlock value
IBREL’s proposed hiving off power and infrastructure businesses into a holding company,
Indiabulls Infrastructure and Power Ltd (IIPL), has been approved by the board of directors,
shareholders and creditors (secured and unsecured). According to the demerger plan, IBREL’s
infrastructure business and the company’s 58.6% holding in Indiabulls Power (IBPOW) will be
moved to IIPL. If the plan is approved by the High Court of Delhi (expected October-December
2011), shareholders of IBREL will get 2.95 equity shares of IIPL for each IBREL share. We value
IBREL’s stake in IBPOW at Rs32/share, implying a 20% holding company discount to IBPOW’s
current stock price and resulting in a Rs42 value for the real estate business, based on current
market prices (see Table 6).
We factor in sector headwinds and cut our TP by 17%; maintain Buy
We factor in the headwinds we see and cut our earnings forecasts by 6% in FY12 and 18% in
FY13. As a result, we cut our TP by 17% to Rs120, which consists of: 1) Rs88/share for real
estate (applying a 20% discount on GAV); and 2) Rs32/share for the 58.6% stake in IBPOW (at a
20% holding company discount to IBPOW's current market price). We maintain Buy on what we
see as an attractive valuation.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We expect IBREL's sales momentum to remain muted in the near to medium term given weak
sentiment and headwinds in Mumbai. However, we see shareholders gaining value from IBREL's
power business demerger – likely to be effective by October-December 2011. We cut our TP to
Rs120, but maintain Buy.
Sales volumes to remain muted due to weak sentiment and headwinds
IBREL’s sales momentum in its mid-income projects in Panvel, Gurgaon and Chennai has
softened, while that of its luxury projects in central Mumbai (like Sky and Bleu) has become very
slow. Further, July 2011 data released by Prop Equity, a primary and secondary market
database, indicates that the Mumbai market (IBREL’s major market) continues to face weak sales
volumes as high property prices and mortgage rates cripple demand. The market continues to
have a low absorption rate (5%) due to the spike in residential property prices. We note that
IBREL’s promoters increased their stake to 28% as of 30 June 2011, increasing it by 5ppt qoq.
Power demerger, likely to be effective by October-December 2011, to unlock value
IBREL’s proposed hiving off power and infrastructure businesses into a holding company,
Indiabulls Infrastructure and Power Ltd (IIPL), has been approved by the board of directors,
shareholders and creditors (secured and unsecured). According to the demerger plan, IBREL’s
infrastructure business and the company’s 58.6% holding in Indiabulls Power (IBPOW) will be
moved to IIPL. If the plan is approved by the High Court of Delhi (expected October-December
2011), shareholders of IBREL will get 2.95 equity shares of IIPL for each IBREL share. We value
IBREL’s stake in IBPOW at Rs32/share, implying a 20% holding company discount to IBPOW’s
current stock price and resulting in a Rs42 value for the real estate business, based on current
market prices (see Table 6).
We factor in sector headwinds and cut our TP by 17%; maintain Buy
We factor in the headwinds we see and cut our earnings forecasts by 6% in FY12 and 18% in
FY13. As a result, we cut our TP by 17% to Rs120, which consists of: 1) Rs88/share for real
estate (applying a 20% discount on GAV); and 2) Rs32/share for the 58.6% stake in IBPOW (at a
20% holding company discount to IBPOW's current market price). We maintain Buy on what we
see as an attractive valuation.
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