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The Indiabulls Real Estate stock has risen 64 per cent through the past month, owing to expectations of higher economic growth rubbing off on the company’s performance.
While the sector has been an underperformer through the past couple of years, analysts at Goldman Sachs say this space will see the beginning of an improvement in operations, driven by higher growth in gross domestic product, as well as higher consumer confidence. Other than the broader rally, analysts prefer the stock due to improving execution and cheap valuations, with some analysts saying the perceived political risks are overstated.
On Wednesday, the stock closed at Rs 106.25 on the BSE, up nine per cent.
In a May 19 report, analysts at Motilal Oswal Securities said there was good cash flow visibility, as concluded pre-sales had yielded Rs 5,200 crore; unsold inventories stood at Rs 12,500 crore.
In the current financial year, the company plans to launch 8.7 million sq ft across India (88 per cent in Gurgaon). It has a land bank of about 1,000 acres; of that, 54 per cent in the National Capital Region.
Indiabulls Real Estate’s leasing momentum is also increasing, with 82 per cent of IPIT (Singapore-listed trust)’s office space leased out.
While analysts are hopeful of the prospects, pre-sales activity in the March quarter was subdued, with the company recording 0.5 million sq ft, against 0.6 million sq ft in the December quarter.
Given the market conditions, it was unable to meet its initial forecast of Rs 4,000 crore for FY14, achieving Rs 3,100 crore in pre-sales value. While the sales momentum not as high as in the previous years, it was better than that of its peers in the Mumbai/Gurgaon markets. Motilal Oswal Securities analysts believe the company’s pre-sales will stand at Rs 3,100 crore and Rs 3,400 crore in FY15 and FY16, respectively.
On the valuations front, the stock offers an attractive dividend yield of five per cent and trades at 0.4 times its FY14 price-to-book value. It has a low leverage compared to peers, with a debt-equity ratio of 0.4. The stock is being traded at 5.3 times its FY15 price-to-earnings multiple and four-five times the enterprise value/Ebidta (earnings before interest, tax, depreciation and amortisation).
While there could be some upside (target prices range from Rs 98-125), given the sharp rise in prices, investors will do well to wait for an uptick in sales activity before taking exposure to the stock.
