Motilal oswal, Indiabulls Real Estate : TP: INR91 Buy

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 Indiabulls Real Estate (IBREL) witnessed 16% decline in its EBITDA for 3QFY12 to ~INR1b; EBITDA margin was
largely steady at 29% v/s 31% in 2QFY12.
 Sales volume declined QoQ, with 0.9msf (INR4.5b) in 3QFY12 v/s 1.2msf (INR4.9b) in 2QFY12 and 2.3msf
(INR8.7b) in 3QFY11. Projects at Panvel and Gurgaon remain the major sales drivers. The average realization
during the quarter improved to INR4,934/sf (v/s INR3,967/sf in 2QFY12).
 Sales for 9MFY12 were ~2.9msf (INR13.2b) v/s the company's full-year guidance of crossing FY11 sales of
~5.9msf (INR48.4b) and our full-year sales estimate of ~4.4msf (~INR19b).
 Leasing in IPIT commercial remained steady QoQ at 0.18msf, taking the total area under lease at IFC and
Indiabulls One to 2.15msf. Majority of the leasing at IFC took place at INR110-125/sf/month.
 IBREL has received approval from Maharashtra Pollution Control Board (MPCB) for its Sky Suit and Sky Forest
projects. Commencement of construction would be a key sentiment booster.
 Post the power vertical demerger, net debt stood at 0.26x. The stock is trading at ~0.4x FY13E BV and 12.6x
FY13E EPS, and at a ~40% discount to our NAV estimate. Re-iterate Buy.
Key highlights
 Revenue de-grew by 10.8%YoY: 3QFY12 revenue de-grew by 10.8%YoY to INR3.6b
v/s. INR3.3b in 2QFY12. The key projects accounting for significant portion of
revenue recognition continue to be a) Indiabulls Green (Panvel), b) Centrum Park
(Gurgaon) and c) Chennai Green.
 EBITDA margin stable: EBITDA declined by 16%YoY to ~INR1b, while EBITDA margin
stood at 29% v/s. 30.1% in 2QFY12. We estimate FY12E EBITDA margin at 26%.
 PAT de-grew YoY due to high interest cost: PAT declined by 46%YoY to INR417, due
to higher interest expense. However Interest expense reduced sequentially to
INR494m v/s. INR724m in 2QFY12 due to the one off payment effect 2QFY12
witnessed.
 Sales declines sequentially: During 3QFY12, IBREL sold 0.9msf (INR4.5b) v/s. 1.2msf
(INR4.9b) in 2QFY12 and 2.3msf (INR8.7b) in 3QFY11. Projects at Panvel and Gurgaon
remain the major sales drivers. The average realization during the quarter
improves to INR4934/sf (v/s. INR3967/sf during 2QFY12).
 Sales guidance at risk: IBREL has achieved only ~2.9msf (INR13.2b) of sales over
9MFY12 v/s. it guidance of crossing its FY11 full year volume of ~5.9msf (INR48.4b).
However delay in new launches, approval hurdle in central Mumbai projects and
sluggish market have been key deterrents. We estimate ~4.4msf (~INR19b) of
sales over FY12
 New launches much awaited: IBREL launched no new project during 3QFY12,
however expects to launch projects at Savroli, Chennai and Bharat Mills over next
few months. Most of these projects are currently awaiting final approvals. Recent
equity infusion of INR2b by diluting 9.36% stake at Bharat Mills project to IL&FS
indicates for a possible launch in near-term.
 Leasing run-rate maintained at IPIT commercial properties: Leasing volume in IPIT
commercial remained steady QoQ at 0.18msf, taking total area under lease at IFC
and Indiabulls One to 2.15msf. Major share of leasing at IFC happened at average
rental of INR110-125/sf/month.
 Execution area stable over past 5 quarters: While IBREL's average quarterly revenue
recognition run-rate of ~INR3b against quarterly sales booking of ~INR4.5b bodes
for a steady execution, we see total area under construction to remain stable at
~17msf (including 2.7msf of commercial projects- handed over 0.2msf in 3QFY12)
over past 5 quarters, largely due to muted new launch. Earlier the management
has guided for strong traction in execution with INR65b capex over next 3-4 years
in RE vertical. We see further upside scope in revenue booking going forward.
 Net DER(x) stood 0.26x: During 3QFY12, post demerger power vertical IBREL's net
debt stood at INR18.4, implying a net DER of 0.26x
 Share capital increased for scheme of arrangement: IBREL's share capital increased
to INR906m, due to a) issuance of 42.5m share to IBREL-IBL Scheme Trust for
amalgamation of Indiabulls Builder Limited (IBL), a 100% owned IBREL subsidiary
with IBREL as a part of scheme of arrangement and b) partial execution of warrant
conversion of 28.5m.


Valuation and views: "Go ahead" on execution in IPIT a strong positive;
several recent triggers for the stock
 Despite a subdued sales momentum over past 3-4quarters, IBREL's strong presales
of ~INR74b offers a robust cash flow and revenue visibility going forward.
 With MPCB approvals at Sky Suit and Forest, we expect mitigation of environment
overhang on ~25% of NAV estimate (We estimate IPIT residential (Sky, Suites and
Forest) and IPIT commercial (IFC and IBREL Jupiter) to account for ~39% of IBREL's
NAV of INR113, while the mentioned residential towers Sky Suit and Sky Forest
accounts for ~25% of NAV).
 While sales momentum central Mumbai market has been sluggish, we expected
IBREL's project to command customer preference due to higher progress in
construction compared to peers. However the approval hurdle over past couple
of quarters impacted the execution pace. Now with go ahead from MPCB, we
anticipate revival of momentum in these projects along with commencement of
construction.
 Recently IBREL has raised INR2b by diluting 9.36% stake to IL&FS Trust Company
Limited in its Bharat Mill project at Worli, which values the project at INR21.4b as
against acquisition cost of ~INR15.8b in 2010 (deal is 35% premium to acquisition
cost). This also signifies improving sentiment for central Mumbai market.
 The Board has also approved buyback of up to INR4.5b at a maximum price of
INR75/share from open market recently.
 The stock is trading at ~0.4x FY13E BV and 12.6x FY13E EPS, and at a ~40% discount
to our NAV estimate. Re-iterate Buy.