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BUY Target 155
Investment Rationale
~ Ongoing projects – Key focus: Mumbai, Delhi, Chennai
~ Lower net debt / Lower leverage
~ Value unlocking after power business hived off
~ Q2 FY12 results surprise on revenue and operating level
~ Blip Industry scenario -- though -- Structural positive in
longer run
Company Description
Indiabulls Real Estate (IBREL) is one of the largest real estate
companies in India, with premium development projects of
commercial and office complexes, residences, mega-townships,
retailing, hotels and resorts, state-of-the-art special economic
zones, and infrastructure development. It has 31 projects covering
64 million square feet, 2,551 acres of SEZ development and a
further 580 acres.
The company has more than 90% of its portfolio in the Mumbai,
Delhi (NCR) and Chennai markets, with land worth $900 million
bought in government auctions.
Within four years of inception, IBREL has delivered a record 3.3
million sq. ft. of developed space, valued at $1.75 billion. This is
the fastest and largest delivery (by value) by any Indian realestate
developer within a similar time frame.
Based on its experience, the company plans to develop real
estate in the commercial and residential sectors beyond its
operating areas of Mumbai and Delhi. Also, it plans to focus on
developing mid to high-end residential projects in Tier 2 cities, as
well as opportunities to develop townships on the outskirts of
major cities.
• Ongoing projects – Key focus: Mumbai, Delhi,
Chennai
IBREL has various ongoing projects in the residential, commercial
and SEZ zones. Over 90% of its portfolio (by value) focuses on
the Mumbai, Chennai and Delhi regions.
Total area under development covers 64.32 million sq. ft,
including 55.18 million sq. ft. of residential and 9.14 million sq. ft of
commercial development. Total area under construction covers
17.48 million sq. ft., 14.56 million sq. ft. in a residential zone and
2.93 million sq. ft. in a commercial zone. The leased area till 30th
September 2011 was 1.93 million sq. ft.
- The residential projects at Gurgaon comprise a complex across
six acres. Also, the new projects at Panvel and Worli are in
progress.
- The commercial space includes the finance centres at BKC and
Nariman Point.
- The multi-product SEZ is located in Sinnar taluk of Nashik
district.
The company is waiting for basic clearance for land/property in
Worli and Lower Parel. The next trigger for the stock would be
these two delayed projects, which may add to revenue generation.
• Lower net debt / Lower leverage
For FY11, its loan funds are Rs.3732.2 crore. The debt-to-equity
ratio is 0.22x, indicating lower debt on books. Further cutting into
their profitability is the tight liquidity environment. At Q2FY12-end,
IBREL had cash of Rs.407 crore, with liquid investments of
Rs.5561 crore.
• Value unlocking after power business split off
IBREL is divesting its 58.5% stake in its power subsidiary,
Indiabulls Power, into a separate entity. IBREL's board has
already approved a restructuring, under which the power business
would be split off to Indiabulls Infrastructure and Power (IIP), with
each shareholder of IBREL getting 2.95 shares of IIP. IBREL
holds 58.63% in Indiabulls Power at an investment cost of Rs.593
crore (current value: Rs.1,248 crore). The process of hiving off
should be complete by this financial year-end. Splitting of power
business will unlock value for the company and mainly
concentrate on the realty business.
• Q2 FY12 results surprise on revenue and operating
level
Q2 FY12 results were a surprise. The company reported 10.6%
revenue growth, with net profit declining 22.6%. EBITDA has
improved 30.3% y-o-y, with the margin at a better 41%.
More sales (though slower) improved execution in ongoing
projects and a favorable revenue mix helped the top line. On
bottom line front, hit mainly by higher interest costs, (Rs.11.65
crore Q2FY11 to Rs.72.37 crore Q2FY12) rise of 521%, the
bottom line declined 22% in Q2 FY11.
• Blip Industry scenario -- though -- Structural positive
in longer run
At present, the industry scene is a blip on expectations, at higher
prices and lower demand, corporate governance issues and
overall negative sentiment in the market. Developers’ ability to tap
the debt market has become increasingly difficult as lenders have
tightened the noose on fresh lending to the sector. Further,
borrowing at unsustainably high rates from private sources to
replace long-term cheaper funds is only a short-term solution.
Further, access to equity capital markets is also limited in the
current scenario for developers with interest rates at a hike.
The contrarian view may be that, the expectations of interest rate
reversal as hinted by RBI in next few quarters, which will make
credit availability comparatively easier for the buyers which will in
turn improve demand, also for the developers it will reduce the
interest cost burden which is eating up its profitability. Any news
flow relating to price cuts may help the sector to re-rate and help
in pick up in demand especially the residential segment (IBREL
concentrates on residential). And most of the developers have
initiated some efforts towards it by providing discounts such as
overseas vacations, waiver of registration and stamp duty, etc.
We remain structural positive on India’s real estate growth story
and believe that one can play the sector through companies who
have proven track record, transparency in operations,
comparatively higher exposure to residential segment where
inherent demand will be seen over a period of time and also those
companies with lower leverage.
Concerns
Any further investment in land may raise debt on the books along
with approval delays hamper execution of projects.
Any dip in volumes due to absence of price cuts may hamper the
revenue generation.
Valuations
The sector underperformance has de-rated stocks across the
board providing select opportunities. IBREAL is one company with
lower leverage and good track record. We feel once the pick up in
the sector will benefit the company gradually. At CMP the
company is at its 52week low and trades at 12.4x and 9.8x FY12E
and FY13E earnings respectively. One can BUY for a price target
of Rs.155 for a time horizon of next 2 years.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
BUY Target 155
Investment Rationale
~ Ongoing projects – Key focus: Mumbai, Delhi, Chennai
~ Lower net debt / Lower leverage
~ Value unlocking after power business hived off
~ Q2 FY12 results surprise on revenue and operating level
~ Blip Industry scenario -- though -- Structural positive in
longer run
Company Description
Indiabulls Real Estate (IBREL) is one of the largest real estate
companies in India, with premium development projects of
commercial and office complexes, residences, mega-townships,
retailing, hotels and resorts, state-of-the-art special economic
zones, and infrastructure development. It has 31 projects covering
64 million square feet, 2,551 acres of SEZ development and a
further 580 acres.
The company has more than 90% of its portfolio in the Mumbai,
Delhi (NCR) and Chennai markets, with land worth $900 million
bought in government auctions.
Within four years of inception, IBREL has delivered a record 3.3
million sq. ft. of developed space, valued at $1.75 billion. This is
the fastest and largest delivery (by value) by any Indian realestate
developer within a similar time frame.
Based on its experience, the company plans to develop real
estate in the commercial and residential sectors beyond its
operating areas of Mumbai and Delhi. Also, it plans to focus on
developing mid to high-end residential projects in Tier 2 cities, as
well as opportunities to develop townships on the outskirts of
major cities.
• Ongoing projects – Key focus: Mumbai, Delhi,
Chennai
IBREL has various ongoing projects in the residential, commercial
and SEZ zones. Over 90% of its portfolio (by value) focuses on
the Mumbai, Chennai and Delhi regions.
Total area under development covers 64.32 million sq. ft,
including 55.18 million sq. ft. of residential and 9.14 million sq. ft of
commercial development. Total area under construction covers
17.48 million sq. ft., 14.56 million sq. ft. in a residential zone and
2.93 million sq. ft. in a commercial zone. The leased area till 30th
September 2011 was 1.93 million sq. ft.
- The residential projects at Gurgaon comprise a complex across
six acres. Also, the new projects at Panvel and Worli are in
progress.
- The commercial space includes the finance centres at BKC and
Nariman Point.
- The multi-product SEZ is located in Sinnar taluk of Nashik
district.
The company is waiting for basic clearance for land/property in
Worli and Lower Parel. The next trigger for the stock would be
these two delayed projects, which may add to revenue generation.
• Lower net debt / Lower leverage
For FY11, its loan funds are Rs.3732.2 crore. The debt-to-equity
ratio is 0.22x, indicating lower debt on books. Further cutting into
their profitability is the tight liquidity environment. At Q2FY12-end,
IBREL had cash of Rs.407 crore, with liquid investments of
Rs.5561 crore.
• Value unlocking after power business split off
IBREL is divesting its 58.5% stake in its power subsidiary,
Indiabulls Power, into a separate entity. IBREL's board has
already approved a restructuring, under which the power business
would be split off to Indiabulls Infrastructure and Power (IIP), with
each shareholder of IBREL getting 2.95 shares of IIP. IBREL
holds 58.63% in Indiabulls Power at an investment cost of Rs.593
crore (current value: Rs.1,248 crore). The process of hiving off
should be complete by this financial year-end. Splitting of power
business will unlock value for the company and mainly
concentrate on the realty business.
• Q2 FY12 results surprise on revenue and operating
level
Q2 FY12 results were a surprise. The company reported 10.6%
revenue growth, with net profit declining 22.6%. EBITDA has
improved 30.3% y-o-y, with the margin at a better 41%.
More sales (though slower) improved execution in ongoing
projects and a favorable revenue mix helped the top line. On
bottom line front, hit mainly by higher interest costs, (Rs.11.65
crore Q2FY11 to Rs.72.37 crore Q2FY12) rise of 521%, the
bottom line declined 22% in Q2 FY11.
• Blip Industry scenario -- though -- Structural positive
in longer run
At present, the industry scene is a blip on expectations, at higher
prices and lower demand, corporate governance issues and
overall negative sentiment in the market. Developers’ ability to tap
the debt market has become increasingly difficult as lenders have
tightened the noose on fresh lending to the sector. Further,
borrowing at unsustainably high rates from private sources to
replace long-term cheaper funds is only a short-term solution.
Further, access to equity capital markets is also limited in the
current scenario for developers with interest rates at a hike.
The contrarian view may be that, the expectations of interest rate
reversal as hinted by RBI in next few quarters, which will make
credit availability comparatively easier for the buyers which will in
turn improve demand, also for the developers it will reduce the
interest cost burden which is eating up its profitability. Any news
flow relating to price cuts may help the sector to re-rate and help
in pick up in demand especially the residential segment (IBREL
concentrates on residential). And most of the developers have
initiated some efforts towards it by providing discounts such as
overseas vacations, waiver of registration and stamp duty, etc.
We remain structural positive on India’s real estate growth story
and believe that one can play the sector through companies who
have proven track record, transparency in operations,
comparatively higher exposure to residential segment where
inherent demand will be seen over a period of time and also those
companies with lower leverage.
Concerns
Any further investment in land may raise debt on the books along
with approval delays hamper execution of projects.
Any dip in volumes due to absence of price cuts may hamper the
revenue generation.
Valuations
The sector underperformance has de-rated stocks across the
board providing select opportunities. IBREAL is one company with
lower leverage and good track record. We feel once the pick up in
the sector will benefit the company gradually. At CMP the
company is at its 52week low and trades at 12.4x and 9.8x FY12E
and FY13E earnings respectively. One can BUY for a price target
of Rs.155 for a time horizon of next 2 years.
The blog contain info about Indiabulls Real Estate, debt market. Nice and appropriate information.
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