Analysis of IndiaBulls Real Estate

IndiaBulls

COMPANY BACKGROUND

Indiabulls Real Estate is a company operating in the real estate sector both in commercial and residential real estate development. Company’s main focus in Mumbai Metropolitan Region and National Capital Region (Delhi NCR).

Company has fully paid Land Bank of 1,929 acres and is spread across Mumbai, NCR, Chennai, and additional 1,424 acres of Nashik SEZ. Which potentially worth at least 5,000 Cr on a replacement value basis. 

Company has further expanded its JV platform with The Blackstone Group L.P., real estate private equity investor, by adding 2 new assets namely Indiabulls Tech Park, Gurgaon and Indiabulls IT Park.

Goal to Achieve

Company has plans to achieve Zero Net Debt in FY 20 through the following steps –

Unlock the value of ‘Commercial and Leasing’ business by divesting (Divestment is selling subsidiary assets, investments), these assets with Third-Party Investors/ internationally renowned Private Equity players. The expected Equity Value would be approximate  4,400 Cr – 4,800 Cr. 

Considering continuing Brexit related issues and uncertainty around it, the London property market remains sluggish. Company will divest the Hanover Square property, London, and the sale would release an Enterprise Value of £200 million.

The above steps will generate over  6,000 Cr, reducing the Net Debt of Company to Zero in FY 20. And leaving surplus cash for further growth of the Company.

Analysis of the Balance Sheet

Current Asset

Total Current Asset as on March 2018 is 1,513,910 (in lakhs) and as on March 2019 is 1,217,242 (in lakhs) net decrease of 2,96,668 (in lakhs).

The net decrease was because of the sale of Investment and a decrease in cash flow (explained in cash flow analysis).

Current Liability

Total Current Liabilities as on March 2019 is  846,947.03 (in lakhs) compared to March 2018 is 1,264,856.69  (in lakhs).

Net decrease in liability was because, company sold its investment and used its cash available in the bank, to the clear debt arising from debentures and term loan. Current outstanding debt as on March 2019 is 4040 crore. The Current ratio as on 2019 is 2.10 and as on 2018 is 1.80 Debt-Equity Ratio as on 2019 is 0.61 and as on 2018 is 0.46

Company bought back 2.6 Cr Equity shares, from the Exchanges, for an aggregate value of 443.18 Cr, from the open market.

Company mentioned, “The debt-equity ratio has increased, as the equity capital base of the Company has gone down. Because of buyback of 26,000,000 equity shares for INR 44,421 lakhs, and borrowing of the Company has gone up to fund the various projects being undertaken by its subsidiaries”. 

If company can achieve the said goal of zero debt, it will help the company decrease its debt-equity ratio and increase the current ratio. 

Analysis of Profit and Loss Statement

Net Profit for the year ended March 2019 is 47,677 (in lakhs) compared to March 2018 241,345 (in lakhs).

Increase in expenses resulted in a decrease of net profit (Expenses for the year ended March 2019 is 202,619. (in lakhs) compared to March 2018 49,214 (in lakhs). Company purchase land, developing project and other asset purchases resulted in an increase in expenses.

If company is able to achieve the said goal of zero debt, company will no longer bear the interest expense of 46,431 (in lakhs).

Analysis of Cash Flow Statement

Cash Balance for the year ended March 2019 is 60,291 (in lakhs) compared to March 2018 167,357 (in lakhs). Company paid the debt through cash balance available and by the sale of current assets.

Based on my assumption, company is not in much need of urgent cash as they had already purchased land and developing the project. Also, sundry debtors (to whom company made its sale but made on credit) increased from 26,967 (in lakhs) compared to 2018 1433 (in lakhs).

no longer bear the interest expense of 46,431 (in lakhs).

Conclusion

Company borrowed money to buyback its shares from the open market.

Good company buyback its shares from the open market if there is excess cash is available, in this company return’s shareholder money back to them. 

Company plans to sell its business which is sluggish for example London asset because of Brexit issue is a good strategy.

We have seen how DEMONETISATION and RERA has affected the overall real estate sector.

Latest Update

India Bulls Real estate sold its London property as promised in annual reports (In Goals To Achieve section of this post). Company’s shareholders approved for same in AGM on 28 September. Due to Brexit issued company decided to sell its property for $200 million approx. 1823 crores. This step was taken to cut outstanding debt.

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Above Analysis is based on Consolidated Statement. I am neither an investment adviser nor a stockbroker to provide recommendations and none of my answers is to be construed as buy/sell recommendations. All I am doing is, showing the facts of company, which cannot be seen through charts and news.