Indiabulls Real Estate

Transcription

1 BSE SENSEX S&P CNX 19,136 5,750 Bloomberg IBREL IN Equity Shares (m) Week Range 219/99 1,6,12 Rel. Perf. (%) 2/-32/-37 M.Cap. (Rs b) 50.3 M.Cap. (USD b) April QFY11 Results Update Sector: REAL ESTATE Indiabulls Real Estate CMP:Rs125 TP:Rs190 Buy Indiabulls Real Estate (IBREL) reported 4QFY11 results in line with our estimates. EBITDA increased to Rs972m (against our estimate of Rs936m) v/s a loss of Rs121m in 4QFY10. EBITA margins declined sequentially to 17.3% (against 30.7% in 3QFY11). Revenues rose 824% to Rs5.6b against Rs607m in 4QFY10 and net profit grew 278% to Rs234m. Key highlights are: QoQ sales volume declined by ~50%: In 4QFY11, IBREL's residential sales declined sharply to ~1.2msf (from 2.3msf in 3QFY11) in its ongoing projects, amounting to ~Rs5.6b (v/s Rs8.7b in 3QFY11). With this, IBREL's cumulative sales from ongoing projects amounted to Rs62.3b (for ~8.8msf). IBREL witnessed steady leasing momentum in its IPIT commercial properties in Mumbai with ~0.21msf of new leasing in 4QFY11, amounting to total leased area of 1.6msf. Net DER (x) and interest expense up: In 4QFY11, IBREL's gross debt increased to Rs37.3b (v/s Rs33.4b in 3QFY11), implying a net DER (excluding project specific preference shares) of 0.16x v/s net cash position in 2QFY11. During 4QFY11, the interest expense has gone up sharply on a QoQ basis to Rs465m, primarily due to drawing up of debt post Dec-10 on account of Bharat and Poddar Mills land payment. The management has indicated for similar run-rate of interest expense during FY12. Demerger of Indiabulls Wholesale business: In 4QFY11, with the High Court's approvals on the Scheme of Arrangement, IBREL de-merged its wholly owned subsidiary Indiabulls Wholesale Services Limited (IBWSL). IBWSL will issue one equity share of face value Rs2 for every eight equity shares of face value Rs2 of IBREL. Cutting FY12EPS estimate; maintain Buy We are raising our interest expense assumption for FY12 sharply from Rs800m to Rs1.8b as the company is not going to capitalize the interest cost on funds borrowed for Bharat and Poddar Mills and cutting down our FY12 EPS estimate to Rs5.5 (as against Rs6.9 earlier). IBREL trades at a 47% discount to our one-year forward NAV estimate of Rs238, 0.52x FY13E BV of Rs238 and 14x FY13E EPS of Rs9. Maintain Buy. Sandipan Pal (Sandipan.Pal@MotilalOswal.com); Tel:

2 Results in line; interest expense up sharply IBREL reported 4QFY11 results in line with our estimates. EBITDA increased to Rs972m (against our estimate of Rs936m) against a loss of Rs121m in 4QFY10. EBITA margins declined sequentially to 17.3% (against 30.7% in 3QFY11). Margins were lower mainly because of a change in the product mix, with relatively low contribution from its Panvel projects (due to sluggish sales volume) and high contribution from low margin projects in Chennai and Gurgaon. 4QFY11 revenue rose 824% to Rs5.6b against Rs607m in 4QFY10, and net profit grew 278% to Rs234m. The huge annual growth rate was largely because no revenue was booked from its ongoing projects in FY10 due to the percentage completion method. During 4QFY11, the interest expense has gone up sharply on a QoQ basis to Rs465m, primarily due to drawing up of debt post December 2010 on account of Bharat and Poddar Mills land payment. The management has indicated for similar run-rate of interest expense going forward. We are raising our interest expense assumption for FY12 sharply from Rs800m to Rs1.8b and cutting down our FY12 EPS estimate to Rs5.5 (as against Rs6.9 earlier). Volumes fall as realizations improve; sluggish volume in Mumbai continues In 4QFY11 IBREL launched ~2.1msf of residential projects including a new launch in Vizag and phase II at Indiabulls Green, Panvel. The base launch price for its Panvel phase II is Rs4,000/sf against Rs4,700/sf for phase I. The company is in process of launching its 300acre of projects in Sabroli (Mumbai-extended suburbs) in 1QFY12. IBREL's sales fell sharply in 4QFY11 to ~1.2msf (from 2.3msf in 3QFY11) across ongoing projects, amounting to ~Rs5.6b (against Rs8.7b in 3QFY11). With this IBREL's ongoing projects sales amounted to Rs62.3b (for ~8.8msf). The management hinted at slower sales velocity in its central Mumbai and Panvel projects in 4QFY11. Average realization in 4QFY11 was Rs4,786/sf (against Rs3,824/sf in 3QFY11). A steady appreciation of sale prices at its key ongoing projects in Gurgaon and Panvel were key contributors to improvement in realizations. The average realization in 2HFY11 declined sharply from the 2QFY10 level of Rs17,217/ sf. This indicates a sharp fall in sales momentum in IBREL's key super luxury projects in central Mumbai over the past couple of quarters due to diminishing affordability in the concerned micro-market. With steady progress in construction activity and new launches at various locations, IBREL's annual sales grew to 5.9msf (Rs48.4b) in FY11 against ~3msf (Rs14b) in FY10. The company's leasing momentum was steady in its IPIT commercial properties in Mumbai with ~0.21msf of new leasing in 4QFY11 (against ~0.25msf in 3QFY11), leading to total leased area of 1.61msf. 30 April

3 Sales momentum declines 4QFY11 average realization improves sequentially (Rs/sf) Sales Volume (msf) Sales Value (Rsb) 31.0 Sharp decline due to low volume from central Mumbai projects Higher sales contribution from central Mumbai j t 17,217 7, ,067 3,938 4,429 3,824 4,786 1QFY10 2QFY10 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY10 2QFY10 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 IBREL achieves strong pre-sales of Rs62.3b 4QFY11 3QFY11 2QFY11 1QFY11 Value Area Value Area Value Area Value Area (Rs m) (msf) (Rs m) (msf) (Rs m) (msf) (Rs m) (msf) Opening Balance 56, , , , Sales 5, , , , Less: Handed over Closing balance 62, , , , Steady execution progress leads to strong revenue booking, bodes well for cash flow IBREL has shown strong progress in execution in its ongoing projects. Residential area under construction was 15.4msf and commercial projects under construction activities was 1.6msf against 1.8msf in 3QFY11, after handing over of ~0.65msf at Indiabulls Finance Centre and the start of construction in 0.5msf of mid-income commercial projects in 4QFY11. With the new launches of ~2.1msf in 4QFY11, total developable area increased to ~60.9msf (excluding ~0.65msf delivered) against ~59.5msf in 3QFY11. The management guided for strong traction in execution with Rs65b capex over 3-4 years in the RE vertical. We believe IBREL's strong growth in revenue booking is attributed to its steady progress in construction, which augurs well for steady cash flow momentum. IBREL's land bank expansion has gained significant traction after a subdued FY10. In 4QFY11, the company acquired ~21 acres of residential land in Gurgaon and Chennai, leading to a residential land bank of 535 acres. With this, IBREL acquired ~193 acres (Rs24.4b) during FY11, against 77acres (Rs1.3b) in FY10. This includes its ~Rs21b acquisition of 10.8 acres of Worli mill land (Bharat Mill and Poddar Mill) and ~58 acres of land in Panvel (Mumbai), the NCR and Chennai over 2HFY April

4 QoQ area under construction across categories 4QFY11 3QFY11 2QFY11 1QFY11 Residential Super Premium Premium Mid Income Sub-total Commercial Super Premium Mid Income Sub-total Grand Total Key projects witnessed significant construction progress Indiabulls Greens, Panvel (December 2010) Indiabulls Greens, Panvel (March 2011) Centrum Park - Gurgaon (December 2010) Centrum Park - Gurgaon (March 2011) Steady increase in net DER(x) to 0.16x In 4QFY11, IBREL's gross debt increased to Rs37.3b (from Rs33.4b in 3QFY11), which is directly or indirectly attributable to payment towards land acquisition and progress in construction. IBREL's net DER (excluding project specific preference share) increased to 0.16x v/s net cash in 2QFY11. The loans of consolidated IBREL (excluding Indiabulls Power) were Rs15.6b against Rs14.6b in 3QFY11. The management guided for no further increase in IBREL debt, during FY12 30 April

5 Steady increase in leverage over 2HFY11 Net debt (Rsb) Net Debt ex Pref Share (Rsb) Net DER(X) QFY11 2QFY11 3QFY11 4QFY11 With steady sales momentum, the current liability through customer advances increased to Rs25b (v/s Rs20.7b in 3QFY11). Reserve and surplus declined due to the de-merger of IBWSL, while share capital has rose marginally by 0.45m due to allotment of new equity shares after the exercise of ESOPs. QoQ balance sheet (Rs m) FY11 QoQ 1Q 2Q 3Q 4Q Chg. (%) Share Capital Reserves and Surplus 93,728 93,633 94,364 89,833-5 Share application money Share Warrant 1,184 1,184 1,090-8 Project Specific Preference Equity 3,125 3,125 3,125 3,125 0 Project Specific Debentures optionally convertible to equity 1,410 1,410 1,410 1,410 0 compulsarily convertible to equity 7,986 7,986 7,986 7,986 0 Loan from others 3,284 4,967 21,901 25, Interest accrued & due 2,085 2,105 2,120 1,944-8 Loan Fund 14,765 16,469 33,417 37, Cash and Bank 4,533 6,679 5,476 6, Inventory and other loans and adv. related to land 24,585 26,671 47,572 47,220-1 Loans and Advances 25,699 26,107 26,273 18, Fixed Assets 11,040 14,325 25,419 37, Goodwill on Consolidation Sundry debtors 1,424 2,639 3,899 5, Deffered tax asset Other Current Assets Less: Current Liabilities 8,518 11,567 20,734 25, Provision , Working Capital 47,582 50,657 61,958 51, Debit balance from P&L account Application of Funds 32, , , , April

6 Corporate restructuring: de-merger of non-core entities positive Scheme of arrangements: In 4QFY11 with the High Court's approval on the scheme of arrangement, IBREL de-merged its wholly owned subsidiary, Indiabulls Wholesale Services Limited (IBWSL). Consequently, IBWSL will issue one equity share of face value Rs2 for every eight equity shares of face value Rs2 of IBREL. The company's result update presentation suggests IBWSL's overall sales were Rs810m and net profit was Rs240m in FY11. This was driven mainly by sales of area in its retail malls in Ahmedabad and Hyderabad. The management guided for possible sale of retail spaces in the forthcoming quarters. Management is yet to finalized a timeline for IBWSL's listing. We are not valuing IBWSL as part of our NAV, hence our NAV estimate stays unchanged after the de-merger. Power Business: IBREL also approved the restructuring of the power and infrastructure business. IBREL will transfer the power business, comprising 59% stake in Indiabulls Power (a listed company) as a going concern to Indiabulls Infrastructure and Power Limited (IIPL). This is a 100% subsidiary of IBREL and IBREL shareholders will be entitled to 2.95 shares of IIPL for every one share held in IBREL. Indiabulls Builders (a 100% subsidiary of IBREL, Thane SEZ) will also be amalgamated with IBREL. The restructuring will be subject to the requisite approval of shareholders and creditors and sanction of the Delhi High Court. We believe IBREL's strategy of de-merging its non-core businesses to create focused entities is a key positive since it addresses shareholder concerns and will unlock value through the possible listing of the de-merged entities. Operational update on Indiabulls Power: In 4QFY11 the projects under execution for Indiabulls Power (IPL) amounted to ~5,400MW and the capex to build capacity was ~Rs270b. The debt drawn at the end of the year was Rs11.5b in Amravati Phase I and Rs9.5b in Nasik Phase I. Financial closure for Amravati Phase II was achieved in 4QFY11, with the debt component of Rs49.9b being underwritten. With this all four projects aggregating 5,400MW have achieved financial closure. The management guided that IPL was likely to witness a steady increase in leverage in FY12 due to strong execution ramp-up in the Nasik and Amravati plants. The loans of consolidated IPL were Rs10.3b against Rs7.3b in FY10. Other updates In 4QFY11, IBREL emerged as the highest bidder for the 0.2msf of FSI sale by National Textile Corporation (NTC). While the bid price for the auction was set at Rs11,000/sf, IBREL quoted Rs11,200 for its bid for 0.125msf of FSI. The management said the company was planning to load it on Indiabulls Sky project. We estimate additional FSI could have an incremental impact of ~Rs1.8/share on IBREL's post-tax NAV (assuming 45% stake in IPIT). In 4QFY11 the Maharastra government scrapped the regulation of incentive FSI(x) up to 4x under the Public Parking scheme on the island city of Mumbai, which is likely to impact the projects, yet to receive Parking Commencement Certificate (CC). In 30 April

7 this regard, while the IBREL management confirmed the CC approval for its IPIT residential projects, we believe its newly acquired mill-land project Indiabulls Bleu would be impacted with only 1.33x FSI. IBREL promoters have bought an additional 2.6% stake in the company during April 2011, leading to a current promoter holding of 25.57%. Cutting FY12EPS estimate; maintain Buy We believe that over FY11, IBREL has mitigated several key concerns about the company with regard to over-capitalization and lack of operational visibility on the core real estate business, due to (1) deployment of surplus cash, (2) steady sales and execution progress and (3) strong recovery in the commercial vertical. While oversupply and sluggish sales in the key central Mumbai market have been a major concern, we believe IBREL has the first mover advantage with a large part of its central Mumbai construction set to be completed ahead of the competition. Moreover, the presence of mid-income projects in markets such as Panvel and Gurgaon provide it with a strong volume cushion during sales sluggishness in the luxury segment. We are raising our interest expense assumption for FY12 sharply from Rs800m to Rs1.8b and cutting down our FY12 EPS estimate to Rs5.5 (as against Rs6.9 earlier). IBREL trades at a 47% discount to our one-year forward NAV estimate of Rs238, 0.52x FY13E BV of Rs238 and 14x FY13E EPS of Rs9. Maintain Buy. Estimates IBREL one year forward NAV at Rs238 NAV Calculations (Rs m) NAV/ % of % of Share NAV GAV Residential 52, IPIT-Residential 19, Poddar Mills and Bharat Mills 15, Add: Nasik SEZ 7, Add: Other land bank, SEZ and IT Parks 2, Add: IPIT Commercial 21, Gross Asset Value (GAV) 118, Less:Tax 18, Less: Net Debt 15, Add: IBPS 20, Less: Operating Exp 9, Net Asset Value (NAV) 95, April

8 Indiabulls Real Estate: an investment profile Company description IBREL, the de-merged real estate arm of Indiabulls Financial Services (IBFSL), listed on the Bombay Stock Exchange and the National Stock Exchange in March It entered the real estate sector in 2005 after it won two land parcels at auction bids of textile mill land in central Mumbai. The company is focused on development and sale of residential properties in tier-i cities like the NCR, Mumbai and Chennai and rental of commercial properties to be developed in Mumbai. Key investment arguments Strong monetization visibility from robust pre-sales and steady progress in execution; Strong ongoing recovery in the commercial vertical a positive; Restructuring of IBREL's holding in IPL a positive for IBREL shareholders and the move will reduce its NAV discount. Key investment risks Since IBREL is a relatively new player in the real estate space, execution of its aggressive development plan seems to be a challenge. Oversupply concerns in central Mumbai may lead to price rationalization, which could have a detrimental impact on its IPIT projects. Delay in execution and lower FSI approval in recently acquired mill land. Comparative valuations IBREL DLF Unitech P/E (x) FY12E FY13E P/BV (x) FY12E FY13E EV/Sales (x) FY12E FY13E EV/EBITDA (x) FY12E FY13E Recent developments In 4QFY11, with the High Court's approvals on the scheme of arrangement, IBREL de-merged its wholly owned subsidiary Indiabulls Wholesale Services Limited (IBWSL). IBWSL will issue one equity share of face value Rs2 for every eight equity shares of face value Rs2 in IBREL. Valuation and view We believe over FY11, IBREL has mitigated concerns regarding its over-capitalization and lack of operational visibility on the core real estate business, due to (1) deployment of surplus cash, (2) steady sales and execution progress across projects and (3) strong ongoing recovery in the commercial vertical. IBREL trades at a 47% discount to our one-year forward NAV estimate of Rs238, 0.52x FY13E BV of Rs238 and 14x FY13E EPS of Rs9. Maintain Buy. Sector view The real estate sector seems firmly set on the road to recovery. Following balance sheet recapitalization by key RE companies, they are focusing on execution and sales momentum has been picking up. While broadbased recovery in the residential vertical has been a key growth driver over the past one year, ongoing revival in the commercial and retail segments will strengthen the sector outlook in the forthcoming years. EPS: MOSL forecast v/s consensus (Rs) MOSL Consensus Variation Forecast Forecast (%) FY FY Target Price and Recommendation Current Target Upside Reco. Price (Rs) Price (Rs) (%) Buy Stock performance (1 year) Shareholding pattern (%) Mar-11 Dec-10 Mar-10 Promoter Indiabulls Real Estate Sensex - Rebased Domestic Inst Foreign Others Apr-10 Jul-10 Oct-10 Jan-11 Apr April

9 Financials and Valuations 30 April

10 For more copies or other information, contact Institutional: Navin Agarwal. Retail: Manish Shah Phone: (91-22) Fax: (91-22) Motilal Oswal Securities Ltd, 3rd Floor, Hoechst House, Nariman Point, Mumbai This report is for the personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. Motilal Oswal Securities Limited (hereinafter referred as MOSt) is not soliciting any action based upon it. This report is not for public distribution and has been furnished to you solely for your information and should not be reproduced or redistributed to any other person in any form. The report is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon such. MOSt or any of its affiliates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. MOSt or any of its affiliates or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement. The recipients of this report should rely on their own investigations. MOSt and/or its affiliates and/or employees may have interests/ positions, financial or otherwise in the securities mentioned in this report. To enhance transparency, MOSt has incorporated a Disclosure of Interest Statement in this document. This should, however, not be treated as endorsement of the views expressed in the report. Disclosure of Interest Statement Indiabulls Real Estate 1. Analyst ownership of the stock No 2. Group/Directors ownership of the stock No 3. Broking relationship with company covered No 4. Investment Banking relationship with company covered No This information is subject to change without any prior notice. MOSt reserves the right to make modifications and alternations to this statement as may be required from time to time. Nevertheless, MOSt is committed to providing independent and transparent recommendations to its clients, and would be happy to provide information in response to specific client queries. 30 April