Buy Indiabulls Real Estate with a target price of Rs 890 - Motilal Oswal

Indiabulls Real Estate (IBREL IN; Mkt Cap USD4.8b, CMP Rs631, Buy)

Increasing presence across verticals: IBREL plans to significantly increase its presence in high profit segments like commercial offices, retail and SEZs, which have high yield per acre. We estimate total development volumes to increase from 3.6msf in FY08 to 8.1msf in FY10 and peak at 23.9msf in FY17. We believe IBREL, with its fully paid strategically located land bank of ~224msf, is well placed to leverage on the huge opportunities across verticals in the real estate sector.

Emerging as a key player in retail: IBREL plans to develop 30 large format malls across India by FY10, which would make it one of the largest mall developers in India. Of this, work on 15 malls across 13 cities (14msf) has already begun. The company has acquired 63.9% stake in Piramyd Retail, which gives it ready access to 42 stores, 35 wholesale formats and 7 lifestyle retail formats across the country. Piramyd acquisition also provides IBREL with a platform to accelerate roll-out of its cash and carry business. IBREL’s retail vertical accounts for 39% of our GAV.

Building blocks for significant value creation: IBREL is currently working on several initiatives such as (1) Raigarh SEZ, (2) wholesale formats and multiplexes, (3) power plants and (4) Dharavi rehabilitation. Though we have not factored in any upside from these businesses, we believe the option values from these can be significant.

Strong growth ahead; Buy: We expect 490% revenue CAGR and 393% earnings CAGR over FY07-10, on the back of its asset light business model, vertical de-risking and strategically located land bank. Our target price for IBREL at Rs890/share is in line with our FY09 NAV estimate. We initiate coverage with a Buy rating.

Source : Equity Bulls

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