Recommendation From Real Estate sector

This section gives a recommendation of a stock having stock margin padding price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon 

Indiabulls Real Estate

CONSTRUCT YOUR PORTFOLIO WITH INDIABULLS

HERE IS WHY

Improving ROCE
Higher FII participation
Attractive valuation

Indiabulls Real Estate Ltd. (IBREL) is a holding company engaged in the development of real estate and allied activities. Its operations include real estate project advisory, investment advisory, project marketing, maintenance of completed projects, engineering, industrial and technical consultancy, construction and development of real estate properties.

Its revenue from operations on consolidated basis rose to Rs.1,271.1 crore in Q3FY19 from Rs.242.1 crore in Q3FY18, posting a tremendous YoY growth of 425.03 per cent. The company reported PAT of Rs.202.5 crore in Q3FY19 as against Rs.6 crore in Q3FY18. The EPS surged to Rs.4.49 in Q3FY19 from a measly Re 0.13 in Q3FY18. The financials of Q3FY18 are restated as per Ind. AS 115. 

On an annual basis, IBREL has shown revival in parameters such as return on capital employed (ROCE). Till September 2018, the company reported ROCE of 30 per cent, which is the highest ever achievement for the company. The company faced several issues in the recovery of its credit funds which hampered debtor days. The change in credit policy and unfavourable market conditions saw debtor days reach as high as 600 days in FY17. But on the back of strong operational performance and revival in demand scenario, the debtor days came down to 38 days in H2FY19.

The company divested up to 50 per cent stake in two offices at an aggregate value of Rs.464 crore to the entities controlled by The Blackstone Group L.P. Through its wholly-owned subsidiary, the company has entered into a definitive agreement to acquire a land parcel/development rights on nearly 140 acres of land in Gurugram for the development of integrated township and commercial building. The annuity revenue from the rental portfolio will be enhanced by leveraging the 200-plus marquee tenant relationships. The execution of the ongoing projects in the development portfolio will generate a net surplus of Rs.16,961 crore. The key growth factor will be its increasing leasable area. Till FY22, the company is expected to add around 2.29 million sq. ft. of leasable area with potential revenue of Rs.436 crore on an annual basis. The locations of underconstruction offices such as Mumbai and Gurugram add more value. For under construction projects, the rise in collection from sold inventory and new sales can also be expected to be strong on the back of stable demand in the industry. In addition to this, IBREL exhibited occupancy rate as high as 96 per cent in Q3FY19.

The company's long term revenue drivers, stable demand scenario and operational efficiency have led to higher FII participation in calendar year 2018. FIIs had 25.60 per cent stake in IBREL at the end of December 2018 which was higher by almost 3 per cent from June 2018.

Further, its current valuations are very attractive. The stock is currently trading at TTM EPS of Rs.45.36 with TTM PE of 2.21x. Due to the positive key revenue drivers and higher percentage of occupancy in completed projects, we expect strong EPS growth, which may add more value to the stock at the current levels. Hence, we recommend our reader-investors to BUY this stock.