The commercial segment of real estate attracted most private equity (PE) investments during 2018. South India, especially, saw the highest number of PE

What is Mr. Gopal Kavalireddi’s advice on Indiabulls Real Estate? Shall I look forward for a long-term horizon and invest in IBRL when the price dips? I have purchased 155 shares at RS. 230/ share.

As a matter of personal policy I cannot provide any investment advice, but what I can provide is fact based information on the current status and prospects of the company, leaving it to the reader, to take the final decision.


Since 2008, post financial crisis, Realty (Real Estate) as a sector has witnessed severe upheaval in terms of business operations, geographical expansion, segments on offer, cost of funds, customer interest and rising inventory levels followed by depressed price realizations. This was followed by a tumultuous 2 years since 2016 in terms of regulatory changes in an already difficult environment from earlier years.

However, the various reforms undertaken by the govt have enthused organized and established players. These reforms have become supporting factors for the industry and a lot of structural changes are being undertaken, be it DLF, IBREAL, Sobha Developers, Godrej Properties etc.

Indiabulls Real Estate is a Rs. 9,500 cr. market cap company with a net sales of Rs. 4300 cr, net profit margin of 9.5%, debt of Rs. 9500 cr, FV of Rs. 2, no dividends, with an interest cost =60% of the operating profits.

But such is the status of most real estate companies except 1 or 2 companies like Godrej Properties or Oberoi Realty.

The current financial results[1] on comparison with the previous year will indicate a stark improvement in the performance – revenues and earnings per share.

2016–17 was a turnaround year in terms of stock performance for most companies, coinciding with the various policy measures introduced.

  • IBREAL is taking necessary steps to move forward, starting with shedding its non core assets across geographies and reorganizing its existing residential and commercial office leasing businesses in India.
  • The company has many ongoing projects in various parts of India as well as in London – Hanover Bond – with 79 apartments and 50-key 5 star hotel. Current status of the projects is given below:
  • The company currently has annualized annuity revenue of Rs. 720 cr. and is expected to increase to Rs. 1513 cr. by FY 20–21.
  • Do refer to the recent investor presentation for additional details at: https://www.bseindia.com/xml-dat…
  • There was a news piece today about PE investor Blackstone buying equity stake in Indiabulls Real Estate’s commercial assets and to infuse close to $ 300 mn or $500 mn into the company.
  • Last month, UBS Principal Capital Asia bought 1,61,85,106 shares of Indiabulls Real Estate at Rs 211.

Overall, the company is placed in a sweet spot with a lot of things going positive. But, unlike a standard blue chip company, an investor cannot simply invest in this company and forget about it, expecting good performance quarter after quarter. This counter needs constant monitoring as any adverse news or policy decision can affect the business prospects and financials of the company to a large extent.

Financial data source credits: Indiabulls Real Estate press releases to BSE on Q3 results and investor presentation, Moneycontrol and Screener websites.

Footnotes

[1] https://www.bseindia.com/xml-dat…