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Indiabulls Real Estate Equity Research

HomeCompanyIndiabulls Real Estate Equity Research

Date of Research – 18 January 2016

Price – Rs. 50.20

About the Company

Incorporated in the year 2006, Indiabulls Real Estate Limited (“Indiabulls Real Estate” or the “Company”) is one of the largest real estate company in India with development projects spread across high-end office and commercial complexes, premium residential developments, mega townships, retail spaces, hotel and resorts. The Company also provides consultancy and advisory services to various companies which are engaged in the business of construction and development of real estate. The Company has 31 ongoing projects totaling 72.86 million square feet, 2588 acres of SEZ development and additional land bank of 1001.43 acres.

Indiabulls Real Estate has more than 90 % of its portfolio in Mumbai, Delhi (NCR) and Chennai markets with Rs. 4,000 Cr. of land bought through government auctions. The Company has delivered a record 3.3 million sq ft developed space valued at $ 1.75 billion (within 4 years of inception). The Company is working on a strategy of undertaking mid to high-end residential projects in Tire 2 cities as well as opportunities to develop townships on the outskirts of major cities.

Key Financial Figures

Consolidated (Rs. Cr)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 
Total Income from Operations 1,300.56 1,736.24 2,601.19 2,677.34 2,320.34 
Expenses 831.96 1,195.86 2,028.50 1,925.92 1,674.97  
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit) 468.60 540.38 572.69 751.42 645.38  
Depreciation 20.36 20.96 19.69 9.46 71.43  
Finance Costs 226.91 221.28 336.05 348.37 560.81  
Other income 45.73 63.73 135.42 108.51 523.96  
PBT 267.06 361.88 352.37 502.10 537.09
Tax 91.60 131.49 79.53 160.76 182.62  
PAT (before Minority Interest and share of Associates) 175.47 230.39 272.85 341.34 354.47  
Profit/ (loss) attributable to Minority Interest (18.26) (21.26) 23.38 34.10 – 
Share of profit / (loss) of Associates 19.53 27.80 1.39 2.19 (2.20) 
Consolidated Profit / (Loss) for the year 174.20 223.85 248.08 305.05 356.68  

Profitability Analysis

Consolidated (%)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Operating Profit Margin Ratio 36.03 31.12 22.02 28.07 27.81 
Net Profit Margin Ratio 13.49 13.27 10.49 12.75 15.28 

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.

Key Balance Sheet Figures

Sources of Funds / Liabilities (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Share Capital 94.80 84.80 84.80 85.00 92.34 
Preference shares issued by subsidiary 257.69 257.69 – 
Money received against warrants 292.12 
Warrants issued by subsidiary – 
Share application money pending allotment – 
Reserves & Surplus 7,082.73 6,694.09 6,789.14 7,085.29 7,459.99 
Net worth (shareholders funds) 7,435.22 7,036.58 6,873.94 7,170.29 7,844.44 
Minority Interest 691.42 235.89 9.83 33.19 54.93 
Long term borrowings 1,888.72 1,828.00 2,427.92 5,572.63 4,913.16 
Current liabilities 2,078.59 3,612.27 4,029.26 3,878.09 4,125.42 
Other long term liabilities and provisions 90.18 121.76 127.69 189.63 180.78 
Deferred Tax Liabilities 1.94 1.05 3.05 1.15 – 
Total Liabilities 12,186.07 12,835.55 13,471.68 16,844.98 17,118.73 

 

Application of Funds / Assets (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Fixed Assets 324.33 388.51 392.48 238.93 104.21 
Noncurrent Investments 4,909.28 5,262.44 5,481.85 5,494.70 5,475.38 
Miscellaneous Expenditure – 
Current assets 6,842.25 7,041.23 7,388.71 9,966.99 11,060.30 
Long term advances and other noncurrent assets 85.19 69.31 85.42 1,091.07 396.98 
Deferred Tax Assets 25.03 74.05 123.23 53.30 81.85 
Total assets 12,186.07 12,835.55 13,471.68 16,844.98 17,118.73 

Efficiency Analysis

 
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
ROCE 4.27 5.15 5.80 4.48 5.86 
ROE / RONW 2.31 2.48 3.26 3.46 4.35 

Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net Worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry.

Valuation Analysis

Consolidated
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 
Total Income from Operations (Rs. Cr.) 1,300.56 1,736.24 2,601.19 2,677.34 2,320.34 
Growth (%) (6.54 %) 33.50 % 49.82 % 2.93 % (13.33 %) 
PAT (Rs. Cr.) 175.47 230.39 272.85 341.34 354.47
Growth (%) 4.33 % 31.30 % 18.43 % 25.10 % 3.85 %
Earnings Per Share – Basic (Rs. ) 3.74 5.28 5.84 6.77 8.66 
Earning Per Share – Diluted (Rs. ) 3.73 5.28 5.83 6.76 8.60 
Price to Earnings 14.65 12.71 10.09 8.30 19.97 

Dividend History

The Company has maintained an average dividend yield of 1.61 % over the last 5 financial years.

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook. Indiabulls Real Estate’s average current ratio over the last 5 financial years has been 2.67 times which indicates that the Company has been maintaining sufficient cash to meet its short term obligations.

Long Term Debt to Equity Ratio

Companies operating with high debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.

Indiabulls Real Estate’s average long term debt to equity ratio over the last 5 financial years has been 0.37 times which indicates that the Company operates with low level of debt and is placed well to withstand economic slowdowns.

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.

Indiabulls Real Estate’s average interest coverage ratio over the last 5 financial years has been 2.64 times which indicates that the Company has been generating enough for the shareholders after servicing its debt obligations.

Ownership pattern

In its latest stock exchange filing dated 31 March 2017, Indiabulls Real Estate reported a promoter holding of 50.35 %. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.

At the same time, institutional holding in the Company stood at 15.47 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.

 

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