Value Pick

18 November 2011 Time Horizon 24 Months

Indiabulls Real Estate

A.K.Prabhakar akprabhakar@rathi.com Shweta Prabhu shwetaprabhu@rathi.com CA Vivek Gujrati vivekgujrati@rathi.com
Key Matrix Price (Rs.) 63 Market Cap (Rs.cr.) 2549 52 High / Low (Rs.) 181.9/62.20 Mcap/Sales TTM 47.34 Book Value (Rs.) 224.97 TTM PE 13.5 P/BV 0.3 FV 2 BSE 532832 NSE IBREALEST Key financials (consolidated) FY10 FY11 % chg (Rs crore) Gross Sales 129.4 1432.8 1007.59 PBIDT 62.7 386.1 515.73 Interest 9.7 60.9 529.55 Depreciation 12.6 18.4 46.30 Net Profit -16.0 159.8 1097.25 EPS (Rs) 3.7 FV 2.0 2.0 Equity Capital 80.3 85.5 PE (x) 16.8 Latest quarterly results (consolidated) Sep-10 Sep-11 % chg (Rs crore) Gross Sales 300.1 332.0 10.64 PBIDT 105.6 137.6 30.25 Net Profit 50.9 39.4 -22.55 Equity 80.4 80.6 EPS 1.3 0.98 Shareholding pattern Jun-11 Sep-11 % chg (%) Foreign 55.0 51.0 -3.96 Institutions 1.1 0.2 -0.86 Corp. Holding 3.0 4.7 1.67 Promoters 28.0 27.9 -0.04 Public&Others 13.0 16.2 3.19

Closing 63 Investment Rationale

BUY

Target 155

~ 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.

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Value Pick
18 November 2011 Time Horizon 24 Months

Break-up of 64.32 million sq. ft. (area under development)

Expected avg sales price 5.5msqft in AUD is superpremium category 31.1msqft in AUD is underpremium Category 27.72msqft in AUD is under midincome group Rs. 25000 per sqft Rs. 5000 per sqft Rs.2500 per sqft

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

Balance sheet (consolidated) SOURCES OF FUNDS: Share Capital Reserves & Surplus Equity Shares Warrents Minority Int Loan Funds Total Liabilities APPLICATION OF FUNDS: Fixed Assets Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash & Bank Balance Other Current Assets Loans and Advances Current Liabilities & Provisions Current Liabilities Provisions Net Current Assets Profit & Loss A/c Total Assets
Ratios DE PBIDT Margins % PAT Margins %

FY10 392.8 9351.2 1995.6 1363.2 13102.7

FY11 392.3 8983.3 413.46 2047.0 3732.2 15569.1

842.7 7247.4 5367.3 2448.9 19.0 1045.4 10.1 1843.9 432.0 406.3 25.7 4935.3 77.1 13102.7

3718.5 6669.8 7792.2 4722.0 584.0 605.8 9.5 1871.1 2612.3 2504.6 107.7 5180.0 15569.1

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

0.20 48.47 -12.38

0.22 26.94 11.15

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

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Value Pick
18 November 2011 Time Horizon 24 Months

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 Indias 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

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Value Pick
18 November 2011 Time Horizon 24 Months

inherent demand will be seen over a period of time and also those companies with lower leverage.
Financial projections (in cr) Sales EBIDTA PAT EPS Equity FV PE FY12E 1450 497 204 5.06 80.6 2 12.4 FY13E 1825 604 260 6.45 80.6 2 9.8

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.

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