Equity | India | Real Estate

17 August 2010

Produced by: The Royal Bank of Scotland N.V., (India) Office

Indiabulls Real Estate

Buy
Target price

Turning around
1Q11 marked IBREL's transition from an asset to a real-estate play. We see the strategy shift aggressive addition of monetisable land bank and better financial and operational disclosures as positive. We add the value of land parcels to our DCF-based NAV, but a sharp drop in net cash (ex-power) lowers our TP to Rs230.
Key forecasts
FY08A Total property income (Rsm) 5,151 3,959 15.4 12.8 13.5 6.87 165.3 -18.9 FY09A 2,186 133.8 0.52 378.1 0 0 214.7 8.46 FY10F FY11F FY12F

Rs230.00 (from Rs280.00)

Price

Rs196.55
Short term (0-60 days)

n/a
Market view

Underweight

1,294 & 10,659 % 24,047 % -240.5 & 1,239 & 2,936 & 0.6 & n/m 0& 0 233 15.6 3.08 & 63.7 0.5 & 0.25 238.3 17.5 7.31 & 26.9 1& 0.51 244.5 19.6

Price performance
(1M) Price (Rs) Absolute (%) Rel market (%) Rel sector (%)
Aug 07 1000 750 500 250 0 INRL.BO Sensex Aug 08

Reported net profit (Rsm) Reported EPS (Rs)

(3M) 162.4 21.0 13.9 13.8
Aug 09

(12M) 236.6 -16.9 -29.1 -9.9

Reported PE (x) Dividend per share (Rs) Dividend yield (%) Book value per share (Rs) Disc/(prem) to adj BV (%)
Use of %& indicates that the line item has changed by at least 5%. Accounting standard: Local GAAP Source: Company data, RBS forecasts

168.0 17.0 16.4 11.8

year to Mar, fully diluted

Change in strategy gets aggressive, more disclosures; promoters increase stake Despite cash reserves of Rs22bn in FY09 and having raised Rs42bn (from QIP and Power IPO) in FY10, we have not seen IBREL bid aggressively for land parcels. However, in last two weeks, it has bid for and won two NTC mill projects at twice the reserve price. Given limited clarity on IBRELs share of the developable area, we do not incorporate this in our valuation, but estimate possible upside of about Rs15/share. IBREL plans to add other such high-potential monetisable land parcels in the near term, given its low gearing of about 1%, vs about 50% for peers. There has been noticeable improvement in financial and operational disclosures, addressing investor concerns. Promoters stake has increased from 16.7% in December 2009 to 23% in July 2010 (28%, factoring in the proposed warrants issue), which should mitigate the concern about low promoter ownership resulting in a high freefloat. 1Q11 marked IBRELs shift from an asset play to a real-estate play IBREL has long been an asset play (huge cash and investments in Indiabulls Property Investment Trust [IPIT]), as most of its real-estate projects are still in the initial stages of construction. However, 1Q11 marked the start of its transition to a real-estate play, with EBITDA turning positive. IBREL guides to FY11 revenues of about Rs10bn, vs Rs4.9bn cumulative revenues booked over FY07-10. The company states the total revenue potential of the area under its development is Rs218bn. We note that IBRELs execution has picked up, but we would be more enthusiastic on sales ramp-up at IPIT and other projects. Use of cash reserves sees our target price decline to Rs230 (from Rs280); Buy We factor in the faster pace of execution and include a couple of land parcels, resulting in our FY11-12 revenue forecasts increasing about 45% (on a low base), but we reduce other income (largely interest income), resulting in a 25-40% cut to earnings. We add some land parcels to our DCF-based NAV estimate, but a reduction in per-share net cash (ex-power) from Rs66 to Rs(1) reduces our SOTP target price from Rs280 to Rs230: 1) Rs169/share NAV for the real-estate business, applying a 15% discount to GAV and accounting for net cash; and 2) Rs61/share for the 58.6% stake in Indiabulls Power at market price less a 20% holding-company discount (details on Table 12). Potential upside could be Rs40/share, Rs25 from the Mumbai Mantralaya project and Rs15 from the NTC mill projects (not included yet). Important disclosures can be found in the Disclosures Appendix.

Market capitalisation

Rs78.95bn (US$1.69bn)
Average (12M) daily turnover

Rs1520.45m (US$32.96m)
Sector: BBG AP Real Estate RIC: INRL.BO, IBREL IN Priced Rs196.55 at close 16 Aug 2010. Source: Bloomberg

Analyst
Prakash Agarwal
India +91 22 6715 5314 prakash.agarwal@rbs.com

83/84 Sakhar Bhawan, Nariman Point, Mumbai 400 021, India http://research.rbsm.com

Turning around
The real estate business has started contributing to IBRELs financial performance, with EBITDA turning positive. IBREL also seems to have become aggressive in bidding for land parcels. We view greater disclosures and an increase in the promoter stake as positive.

1Q11 results financials start to kick in

Revenue from real estate kicks in for the first time The real estate business has started to contribute to IBRELs financial performance, with 1Q11 revenue at Rs1.7bn (up 858% yoy and up 183% qoq on a low base). We note that IBREL follows a POCM (percentage of completion method, like most developers) for revenue recognition recognising revenues only after 30% of the construction cost (excluding land costs) has been incurred. Since most of its projects (excluding those held by IPIT, of which it owns 45%) are in the initial stages of construction, revenues were not being booked. However, with its projects in Gurgaon, Ahmedabad, Baroda, Chennai and Hyderabad having crossed the threshold for revenue recognition, there has been revenue booking this quarter. EBITDA positive after eight consecutive quarters of losses IBRELs revenue-recognition policy did not allow revenue booking in the past, but fixed costs have resulted in the company booking marginal losses at the EBITDA level for quite some time. The company for the first time in eight quarters booked a profit at the EBITDA level EBITDA of Rs217m, implying an EBITDA margin of 12.6%. With a reduction in cash reserves, interest income and other income dropped to Rs206m, from Rs313m in 1Q10. Profit after tax was Rs206m, versus a loss of Rs283m in the comparable quarter last year. Table 1 : 1Q11 results snapshot
(Rsm) Revenues COGS Staff SGA EBITDA EBITDA margin Other income Interest expense Depreciation Pre-tax profit Tax Tax rate Minority Interest Preference dividend Profit after tax Profit after tax margin
Source: Company data, RBS forecasts

1Q10 179 0 86 393 -300 -167.5% 313 31 30 -48 144 -300.5% 51 40 -283 -158.2%

2Q10 132 83 112 268 -330 -248.8% 612 21 31 231 132 57.1% 52 40 7 5.1%

3Q10 375 21 166 510 -322 -85.9% 480 43 32 83 -16 -18.7% 71 0 28 7.4%

4Q10 607 1 277 450 -120 -19.8% 294 2 33 139 76 55.1% 54 0 9 1.4%

1Q11 1,717 1,323 122 56 217 12.6% 206 10 33 378 127 33.5% 46 0 206 12.0%

Operational highlights picking up momentum

IBRELs share of revenue from projects under development Rs217.7bn The total area under development by the IBREL group (including IPIT) is 54.2m sq ft, of which 14.5m sq ft is under construction. Management has disclosed that the total sales revenue potential of the area under development (at current prices) is Rs310.9bn, of which IBRELs share is Rs217.7bn. Furthermore, the company guides for revenue booking of Rs10.3bn in FY11 (excluding the IPIT contribution). We believe most of the FY11 revenue booking will be backended ie, in 4Q of this year because the Panvel project, which has the highest sales potential of IBRELs projects, is expected to contribute from 4Q.

Indiabulls Real Estate | Investment View | 17 August 2010

Table 2 : IBREL group developing 54m sq ft 14.5m sq ft under construction

Area (m sq ft)* Gross developable area Less: project handover Net developable area Area under construction
*Excludes recent Mumbai Mill Land acquisitions. Source: Company data

Residential 44.5 44.5 12.14

Commercial 11.6 1.9 9.7 2.32

Total 56.1 1.9 54.2 14.46

About 90% of area under construction is in super metros,... About 90% of the area under construction is in super metros, as defined by management, which includes the Mumbai region, the National Capital Region (NCR) and Chennai. About 12m sq ft of this is under the residential segment and 2.3m sq ft is commercial. Table 3 : Area under construction (including IPIT)
(m sq ft) Residential Super metro* Rest of India Total Commercial Super metro* Rest of India Total
*Super metro includes Mumbai region, NCR and Chennai. Source: Company data, RBS forecasts

1Q11 10.7 1.44 12.14 2.2 0.12 2.32

4Q10 10.7 1.44 12.14 1.8 0.12 1.92

1Q10 0.5 0.8 1.3 2.7 2.7

yet sales momentum is still to pick up significantly IBREL made residential sales bookings of 0.65m sq ft worth Rs3.1bn during the quarter, with 0.05m sq ft from premium residential projects in Lower Parel (IPIT), about 0.3m sq ft from the Panvel project and 0.3m sq ft from other projects such as in Gurgaon, Ahmedabad, Chennai, etc. Of the 12.1m sq ft under construction, sales have been booked for only 3.65m sq ft. Hence, there was no need for new launches as IBREL initially focuses on selling existing inventory. In the commercial segment, the company has cumulatively leased 1.05m sq ft of IPIT assets (0.05m sq ft in 1Q), of which 0.65m sq ft is currently yielding rent. It handed over three buildings of IPIT assets (two in Jupiter and one in Elphinstone) in the quarter. Table 4 : Residential segment operational highlights
1Q11 Value (Rsm) Sales status Opening balance Add: sales booked in qtr Less: handed over Closing balance Under construction Opening balance New launches/additions Less: handed over Closing balance
Source: Company data, RBS forecasts

4Q10

1Q10

Area (msf) Value (Rsm) Area (msf) Value (Rsm) Area (msf) 3 0.65 3.65 12.1 10,900 3,150 14,050 2.22 0.78 3 8.8 3.3 12.1 12.1 0.8 0.8 590 620 1,210 0.25 0.29 0.54

14,050 3,100 17,150

Greater disclosures on additional development potential Besides the 54m sq ft of land under development, the company has 2,990 acres of land that has been earmarked as follows: 434 acres for residential, 56 acres for commercial and 2,500 acres for SEZ (Nashik). The company also disclosed that this land is fully paid for and is in its possession. We note that the 434 acres of residential land bank includes 35 acres (1.2m sq ft) of prime South Delhi land (Tehkand project), 250 acres of the Savroli project (integrated golf project on Mumbai Pune highway ahead of Panvel) and 149 acres of the Sonepat project.

Indiabulls Real Estate | Investment View | 17 August 2010

Turning aggressive on bidding for land parcels; promoters increase stake

After not utilising its huge cash reserves for a long time IBREL had net cash and equivalents of Rs22bn in FY09. There was a cumulative gross equity raising of Rs42.8bn (Rs26.6bn from IBRELs QIP issue and Rs16.2bn through Indiabulls Powers IPO) in FY10, despite which the consolidated companys net cash declined to Rs15.2bn at the end of 1Q11. IBREL recently began bidding for land aggressively In the past, we have not seen IBREL (despite having a cash pile) bid aggressively for assets, which is why it lost out to Bhushan Steel in Kharghar (Navi Mumbai) and to Lodha Developers for Finlay Mills in Lower Parel (Mumbai) IBREL is still contesting the latter due to Lodha's disqualification on bidding lower than the reserve price due to the downturn. In addition, the Mumbai Mantralaya project, which IBREL won through a bid, was not entirely successful as IBREL had to rebid and its bid is under review by the state government. However, IBREL recently changed its strategy, winning the first NTC bid for the 2.39-acre Worli land e-auctioned by NTC Mills on 31 July 2010 for up-front payment of Rs4.74bn (the bid is almost double the reserve price of Rs2.5bn). It followed this up with winning the NTC Bharat Mill project 8.3 acres for upfront payment of Rs15.05bn (double the reserve price). IBREL plans to add other such high-potential monetisable land parcels. Thus, this marks a clear shift in IBRELs strategy, which now includes aggressively adding such projects. We value its NTC mill project wins at Rs15-30/share, but not yet incorporated in our TP While its NTC mill project bids were aggressive (twice the reserve price), we presume IBREL will attempt to capitalise on DCR 33(24), a regulation that permits developers to avail of a higher FSI (4x) by building a public parking facility, resulting in a higher saleable area. We expect reasonable demand for these projects (if priced reasonably, we assume Rs25,000/sq ft vs Rs 30,000/sq ft prevailing in the vicinity), which could see construction work beginning in the near term since the projects have clear titles and should not be delayed. We collectively value these two projects at Rs15-30/share (based on an FSI range of 3-4x) with key assumptions as shown in the next table. Table 5 : We value its NTC mill project wins at Rs15-30/share
Poddar Mills (case 1) Acres FSI Saleable area (m sq ft) Sales price (Rs/sq ft) Land cost (Rsm) Land cost (Rs/sq ft) Construction cost (Rs/sq ft) Potential sales proceeds (Rsm) Total cost (Rsm) DCF (Rs/share) base-case scenario
Source: Company data, RBS forecasts

Poddar Mills (case 2) 2.39 4 0.58 25,000 4,740 8,130 5,000 14,575 7,939 6

Bharat Mills (case 1) 8.30 3 1.50 25,000 15,050 9,911 5,000 37,963 23,546 12

Bharat Mills (case 2) 8.30 4 2.02 25,000 15,050 7,433 5,000 50,617 26,076 24

2.39 3 0.40 25,000 4,740 10,840 5,000 10,931 7,211 3

However, we do not incorporate the NTC projects into our model, due to lack of clarity on FSI norms, as part of the land may have to be reserved for mill workers welfare and Mhada (the Maharashtra Housing & Area Development Authority) societies. IBREL has stated that it will comply with all steps required to complete the process. In addition, a press report (Business Standard 13 August 2010) stated that state-run National Textile Corporation (NTC) and IBREL have agreed to earmark one-third of the total developable land of Bharat Textile Mills and Poddar Mill for the Brihanmumbai Municipal Corporation (BMC) and Mhada.

Promoters have increased their stake steadily in the last few quarters
We note that in May 2009 the promoters let their 43m warrants (issued in November 2007 with an exercisable price of Rs540) lapse, forfeiting their 10% advance of Rs2.3bn. However, IBRELs promoters are now steadily increasing their stake in the company from 16.7% as of December 2009 to 18.3% as of March 2010 and 23% as of July 2010. We believe this is a positive sign and indicates the promoters confidence in the company.

Indiabulls Real Estate | Investment View | 17 August 2010

Proposed issue of warrants to further increase promoters stake The board of directors recently proposed issuing 28.7m fully convertible warrants at a conversion price of Rs165 per equity share. Of this, about 27.4m warrants would be issued to the promoter group and, upon conversion, would increase promoter shareholding in the expanded equity base by 4.9%. Table 6 : IBREL promoters increasing their stake in the company
millions Total shares outstanding Shares owned by promoters % promoter holding
Source: Company data, RBS forecasts

Dec-09 401.5 67.1 16.7%

Mar-10 401.5 73.4 18.3%

Jun-10 401.7 88.8 22.1%

Jul-10 401.7 92.4 23.0%

Potential 430.4 119.8 28%

Pick-up in IPIT portfolio remains the other key driver

Apart from the value-accretive monetisable land parcels recently acquired, the IPIT portfolio of assets (Jupiter and Elphinstone mills) remain IBRELs jewel assets, although they are not consolidated in its books. To recap, IBREL entered the Mumbai real estate market in 2005 by aggressively bidding at the NTC textile mills auction and winning about 19 acres in Jupiter Mills and Elphinstone Mills at Lower Parel, in Central Mumbai, for about Rs7.2bn. These properties have been seeded in IPIT, where IBREL (also the sponsor of the trust) owns 45% equity. The IPIT portfolio of assets has a cumulative saleable area of about 7.1m sq ft: 3.3m sq ft of residential, 3.3m sq ft commercial and the balance 0.5m sq ft for which end use has not yet been determined. Leasing volumes for commercial assets yet to pick up in a significant way The commercial properties, spanning across five towers and comprising 3.3m sq ft, are nearing completion. Management expects to deliver them in FY11 (it has already delivered 1.9m sq ft of this). However, despite these high-quality assets nearing completion, only about 1m sq ft has been leased out. as demand for commercial properties remains subdued Demand for commercial properties across the country remains subdued. A report by JLL states: Out of the 200m sq ft that was planned between 2009 and 2011, 60m sq ft has been shelved or delayed. Supply overhang to remain in the medium term. JLL estimates that the demand-supply mismatch will be addressed from 2012. Chart 1 : Demand for commercial properties remains subdued, resulting in oversupply
80 70 60 50 40 30 20 10 0 5% 22.8 22.3 28.8 28.8 32.9 42.5 33.1 41.6 19.6 58.5 29.3 55.9 35.5 43.5 42.6 32 20% 30%

25%

15%

10%

0%

2005

2006

2007

2008

2009 Net Absorption (msf)

2010F

2011F Vacancy % (RHS)

2012F

New Completions (msf)

Source: JLL

While rentals in Mumbai (IBRELs primary market) have stabilised Commercial property rents in Mumbai the key segment for IBREL largely stabilised (modest increases in a few pockets) over the past three months, after undergoing a 0-15% correction over the past one year. The 8% rental appreciation in Lower Parel, where IPITs commercial properties are located, is encouraging.

Indiabulls Real Estate | Investment View | 17 August 2010

Table 7 : Commercial property rentals have fairly stabilised (2QCY10)

Average rent (Rs/sq ft) CBD Worli Lower Parel Bandra Kurla Andheri Kurla Malad IT Powai IT Vashi IT Thane Belapur RdIT Thane IT
Source: JLL, Cushman & Wakefield

% chg in 3M 0% 0% 8% 4% 5% 13% 0% 0% 0% 0%

% chg in 1Y -14% 0% 3% 0% -4% 13% 0% 0% 0% -10%

6-month outlook Market stable Market stable Market stable Market stable Market stable Market stable Market stable Market stable Market stable Market stable

300 250 195 250 115 90 90 65 40 45

oversupply persists; we expect demand to pick up within four to six quarters Cushman & Wakefield (C&W), a leading international property consultant (IPC), estimates that Mumbai will see supply of about 7m sq ft within the next six months, the majority of which will be concentrated along Lower Parel and Andheri. While rentals have largely stabilised in Mumbai, the countrys commercial capital, we expect a significant pick-up in leasing volumes within only four to six quarters, due to the large supply expected. Chart 2 : Mumbai commercial segment rentals stabilising, but oversupply persists
12 Million sq.ft 10 INR/sq.ft/month 500 450 400 350 300 6 250 200 4 150 100 50 0 2003 2004 2005 Supply 2006 2007 Absorption 2008 2009 1Q10 2Q10 0

CBD Rents (RHS)

Source: Cushman & Wakefield

We believe IBREL will be the first to benefit from the demand revival because its office projects, and now the residential project in lower Parel, are in relatively advanced stages vs the projects of IBRELs peers. Table 8 : Commercial assets nearing completion, but awaiting demand revival
IPIT portfolio of assets Commercial office One Indiabulls Centre (Tower 1 & 2) Indiabulls Finance Centre (Tower 1, 2 & 3) Total commercial offices Residential Indiabulls Sky (1 Tower) Indiabulls Sky Forest (4 Towers) Indiabulls Sky Suites (1 Tower) Total residential Additional development
Source: Company data, RBS

Leasable area

Current leasing rate

Expected delivery

3.3m sq ft Saleable area

Rs175-225/sq ft/month Current selling rate

FY11 Expected delivery

3.3m sq ft 0.5

Rs21,000/sq ft To be finalised

FY13-14

Indiabulls Real Estate | Investment View | 17 August 2010

Oversupply has led to muted sales in the residential vertical as well According to C&W, central Mumbai (where Indiabulls Sky is located) is expected to see a supply of about 7,000 residential apartments over the next three to four years (see next chart). For more details, see Appendix of this note. Interestingly, out of this upcoming supply, nearly 4,400 apartment units are coming up on mill lands. With an estimated demand of 2,300-2,600 residential units over the next three years, C&W expects a significant supply/demand gap in central Mumbai. With supply significantly outstripping demand, capital values in Central Mumbai could see downward pressure. Moreover, availability of mill lands through auctions in the near future should lead to additional supply in this precinct. With locations such as Worli and Prabhadevi being the preferred choice for buyers, taking into account better infrastructure facilities, the residential segment of Lower Parel should see correction in the near future. Thus, we have assumed a total ASP of Rs22,000-25,000/sq ft (including all frills such as preferred location charges (PLC), parking fees, floor rise etc), without any price inflation for the entire project (which is at 20-25% for similar properties near that area). We also note that IPIT has been successful in selling 0.5m sq ft of the total 3.3m sq ft, and we expect sales momentum to pick up as construction activity picks up. The company expects completions over FY13-14. Chart 3 : Upcoming residential units in Central Mumbai
3,000

2,500 No. of Upcoming Apartments

2,000

1,500

1,000

500

0 2010 2011 2012 2013

Source: Cushman & Wakefield

Additional mill land development could boost supply and moderate property prices/rentals C&W estimates that development of mill lands could add 17,000-22,000 residential units and about 20m sq ft of commercial space over the next 10 years. This increase in supply could result in moderating property prices/rentals in Central and South Mumbai. Chart 4 : Potential residential supply through mill land development
4,000

Chart 5 : Potential commercial supply through mill land development

6 5

3,000
Area (Million sq. ft) 4 3 2 1 0

2,000

1,000

0 2012 2014 2016 2018 2020

2010

2012

2014

2016

2018

2020

Mill Land Release (no. of units) Source: Cushman & Wakefield Source: Cushman & Wakefield

Supply - Office

Indiabulls Real Estate | Investment View | 17 August 2010

Mumbai Mantralaya and Khargar projects could provide upside

Mumbai Mantralaya project IBREL resubmits bid IBREL won the Mumbai Mantralaya modernisation project in August 2009. However, the government subsequently decided to construct Mantralaya through the MMRDA, for security reasons. IBREL has expressed its willingness to handle the project and has submitted a new proposal to the government and is awaiting the governments response. The terms of its proposal are as follows. IBREL to pay Rs3.85bn for the construction and redevelopment of sensitive buildings to the MMRDA or any other agency appointed by the MMRDA (as per the tender cost estimates). IBREL to carry out the balance of construction and development as proposed in the tender document at an estimated cost of Rs4.7bn. IBREL to pay an upfront premium of Rs2.77bn, as quoted in its financial proposal, with a maintenance corpus of Rs2.93bn as per the tender requirement. IBREL not to develop the plot beyond 1.33 FSI, as per the DC rule specified in the tender document. We earlier attributed a value of Rs20 (20% discount to our GAV of Rs25) to the Mumbai Mantralaya project, assuming an FSI of 4x. With the FSI now proposed to be reduced to 1.33x, coupled with uncertainties about IBREL bagging the project, we no longer build it into our valuations. If the government accepts IBRELs revised proposal, it could provide upside to our valuation. We also note that IBREL could have a modified saleable area in this project, and so the upside could vary. Khargar government land auction IBRELs prospects brighten IBREL was the second-highest bidder for developing the 250-acre CIDCO project in Kharghar (Navi Mumbai, Maharashtra). However, after the withdrawal of the highest bidder, IBREL expects the government to award it the project, in line with the tender document. To recap, Future City Properties (P) Ltd bid Rs15.3bn for developing the plot in Kharghar. About 60% of the land is reserved for a Bollywood theme park and the rest would be used for residential and commercial development. CIDCO will retain a 26% stake in the project. Our valuation model does not ascribe any value to this project.

Decline in cash reserves (IBREL ex-power) erodes value

Cash reserves decline seen in FY10... There was a cumulative gross equity raising of Rs42.8bn (Rs26.6bn from IBRELs QIP issue and Rs16.2bn through Indiabulls Powers IPO) in FY10. Despite this, the consolidated companys net cash marginally declined from Rs22.1bn at the end of FY09 to Rs21.7bn at the end of FY10. We estimate the net cash reserve of IBREL (ex-power) declined more significantly, to Rs4.3bn at the end of FY10, from Rs10.2bn at the end of FY09. In the case of IBREL (ex-power), the decline in cash reserves was largely due to an increase in investments (R31bn) and an increase in the working capital requirement (Rs8bn). The company now treats ICDs (inter-corporate deposits) of about Rs22.7bn given to group companies as investments. We used to classify these ICDs as cash equivalents, because we expected them to be a temporary funding mechanism. But post reclassification as investments, we exclude them from cash equivalents. The impact of the increase in investments and working capital has resulted in net cash for IBREL (ex-power) declining from Rs25/share at the end of FY09 to Rs11/share at the end of FY10 despite a contribution from QIP of Rs66/share. and continuing in 1QFY11 Net cash reserves continued to decline in 1Q11, as more projects were brought under construction and development activity. On a consolidated basis, net cash reserves declined to Rs15.7bn (Rs38/share), while the real estate business division (ex-power) turned cash negative for the first time ie gross debt exceeded cash and liquid investments. .

Indiabulls Real Estate | Investment View | 17 August 2010

Table 9 : Decline in cash reserves despite significant equity raising during the year
IBREL (consolidated) Rsm Gross cash (31-Mar-2009) Add: ICDs Add: liquid investments Less: debt (including Preference share capital) Net cash (as on 31-Mar-09) PAT (post dividend + depreciation) (a) Working capital change (b) Cash generated / (utilised) from operations (c = a+b) Capex (d) ICDs converted/shifted to investments (e) Subscription to IPIT Right's Issue (f) Increase in other investments (g) Cash generated/(utilised) from investments (h = d+e+f+g) QIP proceeds of IBREL (i) IPO proceeds of Indiabulls Power adjusted for change in reserves (j) Redemption of preference capital (k) Increase in minority interest (l) Cash generated/(utilised) from financing (m = i+j+k+l) Net Cash generated/(utilised) during the year Net cash at the end of the year (31-Mar-2010) PAT Add: working capital change Cash flow from capex/investments Cash flow from financing activities Net cash generated / (utilised) during 1Q (30-Jun-2009) Net cash at the end of 1Q (30-Jun-2009)
Source: Company data, RBS

Indiabulls Power Rsm 11,955 0 2 11,953 381 -4,164 -3,783 -5,318

IBREL (ex-Power) Rsm 3,942 22,662 0 16,454 10,150 -496 -8,057 -8,553 950 -22,662 -3,015 -6,410 -31,137 26,565 0 -1,375 8,619 33,808 -5,882 4,269 176 -4,628 -436 81 -4,807 -539

IBREL (consolidated) Rs/sh 40 56 0 41 55 0 -30 -31 -11 -56 -8 -16 -91 66 36 -3 21 121 -1 54 1 -10 -8 1 -16 38

IBREL (ex-Power) Rs/sh 10 56 0 41 25 -1 -20 -21 2 -56 -8 -16 -78 66 0 -3 21 84 -15 11 0 -12 -1 0 -12 -1

15,897 22,662 0 16,456 22,103 -115 -12,221 -12,336 -4,368 -22,662 -3,015 -6,410 -36,456 26,565 14,613 -1,375 8,623 48,426 -366 21,737 206 -4,146 -3,157 531 -6,567 15,170

0 -5,318 14,613 4 14,617 5,516 17,469 30 482 -2,721 449 -1,760 15,709

Indiabulls Power preparing the ground work

IPO proceeds have begun to be deployed... Indiabulls Power, IBRELs subsidiary, has strengthened its balance sheet, raising Rs16.2bn through an IPO in FY10. The strong balance sheet should enable the company to execute its ambitious power projects, which are highly capital-intensive. Operationally, the company has not begun to book revenues, resulting in modest losses at the EBIT level Rs105m in 1Q11 via nonoperating income (interest income, etc) resulted in the company recording PAT of Rs30m. Table 10 : IPO issue helped to strengthen balance sheet
Rsm Net worth Debt Minority interest Total Fixed assets Net current assets Cash and liquid investments Total
Source: Company data, RBS forecasts

FY09 23,899 2 3 23,904 2,069 9,880 11,955 23,904

FY10F 38,893 2,006 7 40,907 7,387 14,045 19,475 40,907

1QFY11F 39,372 8 7 39,388 10,106 13,564 15,717 39,387

and work commences on Amravati and Nashik projects Work has commenced on the Amravati and Nashik Thermal power projects. IBREL recently disclosed that fresh coal linkage for Phase 2 of both Amravati (1,320 MW) and Nashik (1,320 MW) was granted in April 2010 by the Ministry of Coals Standing Linkage Committee. The Maharashtra State Electricity Distribution company has tied up a long-term power-purchase agreement (25 years) for 1,200MW at a levelised tariff of Rs3.26/unit from the Amravati Phase I project.

Indiabulls Real Estate | Investment View | 17 August 2010

Reduction in cash reserves leads to 18% cut in target price

We raise our revenue forecasts to factor in the pick-up in the pace of execution IBREL recognises revenues on a percentage of completion method (POCM), whereby revenues are recognised only after 30% of the construction cost (excluding land costs) has been incurred. The company expects to reach this threshold in quite a few of its ongoing projects in FY11, and therefore guides for an impressive revenue booking of Rs10.3bn in FY11 (maintains the guidance provided at end-FY10). This compares with cumulative revenue booking of Rs4.9bn in FY07-10. We factor in a pick-up in the execution pace, include couple of land parcels and incorporate managements guidance and raise our FY11-12 revenues forecasts by about 45%. However, we believe that at its ongoing sales-and-execution pace the revenue booking would largely be backended. We factor in an EBITDA margin moderation We note that IBREL reported an FY10 loss of Rs1bn at the EBITDA level, due to the absence of a contribution from any of its big-ticket ongoing residential projects. Considering the slower-thanexpected sales pace, we believe the selling and marketing expenses could rise to increase sales volume and thereby result in lower EBITDA margins. We now forecast EBITDA margins of 19% for FY11 and 23% for FY12, compared with our earlier assumptions of 22% and 33%. and reduce other income assumption due to declining cash from bidding aggressively IBRELs net cash (on a consolidated basis) dropped to Rs15.2bn as of 1Q11 vs Rs21.7bn as of the end of FY10. With the execution pace picking up at IBREL and Indiabulls Power and with IBREL aggressively bidding for new projects (Mumbai NTC Mill projects IBRELs cumulative bid amount for the two projects was Rs19.8bn), we believe the companys net cash reserve is likely to turn negative. Other income, which primarily comprises interest income, was reduced to Rs1.7bn at end-FY10, from Rs2.2bn at end-FY09. We now estimate it will be reduced further to Rs631m (vs our previous forecast of Rs2.8bn) at end-FY11 (Rs206m reported in 1Q11). Moderation in the EBITDA margin assumptions as well as lower assumptions for other income are the key reasons for the downgrade of our PAT forecasts. Table 11 : Summary of changes to our forecasts
Rsm old Revenue EBITDA PAT
Source: RBS forecasts

FY11F new 10,659 2,025 1,239 % chg 43% 26% -39% old 16,289 5,358 3,644 7,463 1,607 2,045

FY12F new 24,047 5,438 2,936 % chg 48% 1% -19%

Reduction in cash reserve leads to target price cut We factor in the pick-up in the execution pace, no longer ascribe value to the Mumbai Mantralaya project, reflect the correction in Indiabulls Powers stock price and, more significantly, incorporate the reduction in net cash reserves. Cumulatively, these changes result in our target price being cut 18% to Rs230. Real estate business valued at Rs169/share; could have upside of Rs40/share We value IBRELs 45% stake in IPIT at Rs75/share (compared with Rs63/share previously) to reflect the marginal improvement in the leasing environment and a pick-up in the execution pace. We have not yet attributed a value to the 0.5m sq ft of potential developable area, for which end use has not yet been determined. Ex-IPIT, the remaining projects are valued at Rs125/share (compared with Rs84/share previously) to reflect the pick-up in the execution pace. Another key reason for the increase in value is to reflect the additional lucrative land bank disclosed by the company 1.2m sq ft of prime land in South Delhi (Tehkhand), 250 acres in Savroli and 150 acres in Sonepat. We no longer ascribe any value to the Mumbai Mantralaya redevelopment project (previously Rs25/share, or Rs20/share after execution of a risk discount), because of increasing uncertainties. IBREL has submitted a revised proposal to the government. Its acceptance could provide upside to our valuation.

Indiabulls Real Estate | Investment View | 17 August 2010

10

We also ascribe no value to its Mumbai NTC mill projects (could provide upside of Rs15/sh), because of lack of clarity on IBRELs share of the development area. We reduce the execution risk discount to 15% (from 20%), due to the pick-up in the execution pace and better disclosure standards. We arrive at a discounted GAV of its real estate business of Rs170/share, compared with Rs134/share previously. Power business valued at Rs61/share We reflect the correction in Indiabulls Powers stock price, which results in the market value of IBRELs 58% stake in Indiabulls Power being reduced to Rs77/share, from Rs100/share. We continue to attribute a 20% holding company discount, which results in the power business being valued at Rs61/share, compared with Rs80/share previously. Decline in cash reserves to Rs(1)/share (ex-Power) provides the largest negative surprise Net cash reserves for IBREL on a consolidated level have dropped from Rs137/share to Rs38/share. For valuation purpose, we only consider net cash reserves ex-power, which has declined to Rs(1)/share, from Rs66/share. Overall, our target price and NAV for the stock are reduced 18% to Rs230/share and Rs275/share, respectively. Table 12 : Valuation snapshot
Valuation DCF of IBREL's real estate portfolio Rs/share 125 Rs/share (old) 84 Comment Includes Delhi-Tehkhand project, Sonepat and Savroli project; does not include 2,500-acre SEZ Does not include the additional 0.5m sq ft future development Excluded from valuation because no clear timelines Reducing discount from 20% to 15% Company has stated that its land bank is fully paid for

DCF of IBREL's 45% stake in IPIT DCF of Mumbai Mantralaya redevelopment project Total GAV of real estate business (a) Less: 15% discount to GAV (b) Less: payable for land bank (c) Discounted GAV of real estate business (d= a-b-c) Market value of IBREL's 58.6% stake in Indiabulls Power (e) Less: 20% holding company discount (f) Value of IBREL's stake in Indiabulls Power (g = e-f) Consolidated net cash of IBREL Net cash of IBREL (ex-power) (h) TP of IBREL (d+g+h) Total NAV (Real Estate + Power)
Source: Company data, RBS forecasts

75 0 200 30 0 170 77 15 61 38 -1 230 275

63 25 172 34 4 134 100 20 80 137 66 280 335

At current CMP of Rs26; power projects gaining momentum

The key risks to our target price and Buy rating are: a weaker-than-expected response to the recently launched and/or upcoming residential projects in Mumbai and other cities; slower-than-expected execution; poor performance of its listed power entity; and deterioration in the macro environment resulting in a demand slowdown across verticals.

Indiabulls Real Estate | Investment View | 17 August 2010

11

Appendix
Table 13 : Major upcoming residential projects on mill lands In Mumbai
Mill land Pidilite Industries Swan Mills Hindustan Mills Crown Mills Srinivas Mills Apollo Mills Elphinstone Mills Apollo Mills Spring Mills Sri Ram Mills Jupiter Mills Jupiter Mills Khatau Mills
Source: Cushman & Wakefield

Name of developers D B Realty Peninsula Land K. Raheja Corp D B Realty Lodha Group Lodha Group Indiabulls Real Estate Lodha Group Bombay Dyeing Sri Ram Urban Infrastructure Indiabulls Real Estate Indiabulls Real Estate Marathon Nextgen and Adani Infrastructure

Name of project NA Orchid Heights Ashok Gardens Vivarea Orchid Crown World One Lodha Bellissimo Indiabulls Sky Suites Lodha Primero NA Palais Royale Indiabulls Sky Indiabulls Sky Forest NA

Approx. units 1,000 640 600 492 342 300 267 215 180 160 120 102 NA NA

Mumbai Textile Mills (Sakserja Mills) DLF

Table 14 : Other major residential projects In Central Mumbai

Name of developers Unitech Unitech Kumar Builders DB Realty Orbit Group Orbit Group Rupji Constructions Ahuja Group
Source: Cushman & Wakefield

Name of project The Residences Woodside & Ascot Kumar Echlon Orchid Enclave II Orbit Terraces Orbit Grand Rupji Arena Ahuja Towers

Location Parel Dadar Worli Mumbai Central Lower Parel Lower Parel Lower Parel Worli

Approx. units 250 240 200 188 108 88 88 NA

Table 15 : Major commercial projects on mill lands In Mumbai

Mill land Jupiter Mills Elphinstone Mills Ruby Mills Jalan Mills Apollo Mills Dawn Mills Century Mills
Source: Cushman & Wakefield

Name of project One Indiabulls Centre Indiabulls Finance Centre The Ruby NA Lodha Excelus Peninsula Business Park NA

Area (m sq ft) 1.43 1.67 0.85 1.35 0.38 1.2 2

Current status Operational Under construction Under construction Under construction Operational Under construction Under construction

Indiabulls Real Estate | Appendix | 17 August 2010

12

Income statement
Rsm Net rental income Prop development income Other revenue Total property income Other costs EBITDA DDA & Impairment (ex gw) EBITA Goodwill (amort/impaired) EBIT Associates (pre-tax) Net interest Other pre-tax items Reported PTP Taxation Minority interests Other post-tax items Reported net profit Dividends declared Tot normalised items Normalised EBITDA Normalised PTP Normalised net profit
Source: Company data, RBS forecasts

FY08A 0.00 5151 0.00 5151 -1426 3725 -33.2 3692 n/a 3692 n/a -522.4 2495 5665 -1598 -64.6 -43.6 3959 -4067 0.00 3725 5665 3959

FY09A 0.00 2186 0.00 2186 -2656 -470.5 -108.3 -578.8 n/a -578.8 n/a -244.2 2214 1390 -698.2 -397.5 -160.9 133.8 0.00 0.00 -470.5 1390 133.8

FY10F 0.00 1294 0.00 1294 -2365 -1072 -125.7 -1197 n/a -1197 n/a -96.8 1699 404.5 -337.0 -227.7 -80.2 -240.5 0.00 0.00 -1072 404.5 -240.5

FY11F 0.00 10659 0.00 10659 -8634 2025 -304.8 1720 n/a 1720 n/a -135.5 630.9 2215 -737.7 -239.1 0.00 1239 -235.0 0.00 2025 2215 1239

FY12F 0.00 24047 0.00 24047 -18609 5438 -698.9 4739 n/a 4739 n/a -480.1 536.3 4795 -1597 -263.0 0.00 2936 -469.9 0.00 5438 4795 2936
year to Mar

Balance sheet
Rsm Cash & market secs (1) Props under dev Other current assets Investment prop Other non-current assets Total assets Short term debt (2) Long term debt (3) Other liabilities Total liabilities Total equity (incl min) Total liab & sh equity Net debt
Source: Company data, RBS forecasts

FY08A 16219 n/a 62322 674.7 2459 81674 n/a 3389 24042 27431 54243 81674 -10253

FY09A 15897 n/a 50979 12347 4184 83407 n/a 11956 4835 16791 66616 83407 -816.3

FY10F 10454 n/a 43218 72474 8429 134576 n/a 13632 7445 21076 113499 134576 6302

FY11F 9135 n/a 68212 50042 11847 139236 n/a 14995 8324 23319 115918 139236 8985

FY12F 9774 n/a 80988 45038 12896 148695 n/a 20396 9653 30049 118646 148695 13747
year ended Mar

Cash flow statement

Rsm EBITDA Change in working capital Net interest (pd) / rec Taxes paid Other oper cash items Cash flow from ops (1) Capex (2) Disposals/(acquisitions) Other investing cash flow Cash flow from invest (3) Incr / (decr) in equity Incr / (decr) in debt Ordinary dividend paid Preferred dividends (4) Other financing cash flow Cash flow from fin (5) Forex & disc ops (6) Inc/(decr) cash (1+3+5+6) Equity FCF (1+2+4)
Lines in bold can be derived from the immediately preceding lines. Source: Company data, RBS forecasts

FY08A 3725 -39840 1973 -1598 n/a -35739 -2030 5269 -212.9 3026 30295 1969 -4067 -208.4 8814 36803 n/a 4090 -37978

FY09A -470.5 -8412 1969 -698.2 n/a -7611 -2047 -11672 212.9 -13506 12819 8567 0.00 -252.8 -338.0 20795 n/a -321.9 -9911

FY10F -1072 10368 1602 -337.0 n/a 10561 -4368 -60127 0.00 -64495 38274 1676 0.00 -80.2 8623 48492 n/a -5443 6112

FY11F 2025 -24113 495.4 -737.7 n/a -22330 -3725 22432 0.00 18707 936.5 1363 -235.0 0.00 239.0 2304 n/a -1319 -26055

FY12F 5438 -11446 56.1 -1597 n/a -7549 -1748 5004 0.00 3257 -263.0 5401 -469.9 0.00 263.0 4931 n/a 638.8 -9296
year to Mar

Indiabulls Real Estate | Key Financial Data | 17 August 2010

Standard ratios
Performance Normalised EPS growth (%) EBIT margin (%) Net profit margin (%) Return on avg assets (%) Return on avg equity (%) Return on cap empl (%) ROIC (%) Valuation Normalised PE (x) Dividend yield (%) Disc/(prem) to BV (%) Disc/(prem) to adj BV (%) PEG 3yr (%) EV/EBITDA (x) Per share data Tot adj dil sh, ave (m) Reported EPS (INR) Normalised EPS (INR) Dividend per share (INR) Equity FCF per share (INR) Book value per sh (INR) 12.8 6.87 -18.9 -18.9 n/a 18.4

Indiabulls FY08A FY09A FY10F FY11F FY12F 2226 71.7 76.8 8.34 15.0 14.4 33.3 -96.6 -26.5 6.12 1.03 0.28 -1.05 -0.86 464.7 -92.6 -18.6 0.12 -0.33 -1.29 -1.18 73.5 16.1 11.6 1.14 1.31 1.41 0.93 137.0 19.7 12.2 2.44 3.03 3.68 2.47 FY10F -60.0 49.9 28.4 3.56 8.96 8.21 5.90

Unitech FY11F 16.3 47.7 26.5 3.84 7.49 8.71 5.81 FY12F 38.7 48.4 28.3 4.75 9.58 10.9 7.28 FY11F 4.96 48.7 36.8 5.69 8.90 8.04 5.53

HDIL FY12F 35.4 49.4 37.7 7.17 10.8 10.3 6.66 FY13F 63.8 51.0 40.0 10.8 15.7 15.8 10.7

year to Mar

year to Mar

year to Mar

378.1 0.00 8.46 8.46 n/a n/m

n/m 0.00 15.6 15.6 -2.32 n/m

63.7 0.25 17.5 17.5 n/a 43.4

26.9 0.51 19.6 19.6 n/a 17.0 Solvency

29.3 0.12 -95.4 -95.4 -2.15 20.8

25.2 0.17 -82.0 -82.0 n/a 17.5

18.1 0.23 -66.1 -66.1 n/a 13.4

15.6 0.72 -31.1 -31.1 0.47 14.3

11.5 0.89 -19.1 -19.1 n/a 10.00

7.03 1.07 -3.20 -3.20 n/a 6.21

year to Mar

year to Mar

year to Mar

FY08A FY09A FY10F FY11F FY12F 257.5 15.4 15.4 13.5 -147.5 165.3 257.5 0.52 0.52 0.00 -38.5 214.7 401.5 -0.60 -0.60 0.00 15.2 233.0 401.7 3.08 3.08 0.50 -64.9 238.3 401.7 7.31 7.31 1.00 -23.1 244.5

FY08A FY09A FY10F FY11F FY12F -18.9 -12.6 -2.75 3.66 18.3 0.97 -1.23 -0.98 1.73 39.3 4.51 0.00 5.55 4.68 -5.88 12.4 -5.80 0.00 7.75 6.45 4.44 14.9 44.6 5.27 11.6 9.24 2.53 13.9 107.0 6.25

Net debt to equity (%) Net debt to tot ass (%) Net debt to EBITDA Current ratio (x) Operating CF int cov (x) Dividend cover (x)

year to Mar Priced as follows: INRL.BO - Rs196.55; UNTE.BO - Rs86.25; HDIL.BO - Rs279.65 Source: Company data, RBS forecasts

year to Mar

Valuation methodology
Valuation DCF of IBREL's real estate portfolio DCF of IBREL's 45% stake in IPIT DCF of Mumbai Mantralaya redevelopment project Total GAV of real estate business (a) Less: 15% discount to GAV (b) Less: payable for land bank (c) Discounted GAV of real estate business (d= a-b-c) Market value of IBREL's 58.6% stake in Indiabulls Power (e) Less: 20% holding company discount (f) Value of IBREL's stake in Indiabulls Power (g = e-f) Consolidated net cash of IBREL Net cash of IBREL (ex-power) (h) TP of IBREL (d+g+h) Total NAV (Real Estate + Power)
Source: Company data, RBS forecasts

Rs/sh 125 75 0 200 30 0 170 77 15 61 38 -1 230 275

Rs/sh (old) 84 63 25 172 34 4 134 100 20 80 137 66 280 335

Comments includes Delhi-Tehkhand project, Sonepat and Savroli project; does not includes 2,500-acre SEZ and Sonepat Does not include the additional 0.5m sq ft future development Excluding from valuation as no clear timelines Reducing discount from 20% to 15% Company has stated that its land bank is fully paid for At current CMP; power projects gaining momentum

Indiabulls Real Estate | Performance and Valuation | 17 August 2010

Company description

Buy

Price relative to country

120 110 100 90 80 70 60 50 40 30 20 Aug Nov Mar 07 07 08 Jul 08 Oct 08 Feb 09 Jun 09 Sep Jan May Aug 09 10 10 10

Indiabulls Group began with Indiabulls Financial (IFSL) in 2000 and demerged its real estate business as Indiabulls Real Estate in August 2006. Through acquisitions and government allotments, the company has established a sizeable land bank (exceeding 150m sq ft), which is largely paid up and is focused on Maharashtra, Chennai and the National Capital Region. After achieving reasonable success in real estate, IBREL entered the power segment through its subsidiary in 2007, and is developing coal-based thermal and hydro power projects with a total generation capacity of around 6,600MW.

Price relative to country

Strategic analysis Strengths

Average SWOT company score:

3 4

GAV breakdown, FY11F

18% 6%

IBREL's expertise lies in raising equity through complex structures, and securing and executing capital-intensive mega projects that have significant regulatory hurdles.

76% Residential Office Future development

Weaknesses
Limited execution track record and exposure to tier-1 and tier-2 cities.

3 4

Opportunities

Unlike its peers, IBREL is a net-cash-positive company, which enables it to leverage its balance sheet and bid for large-scale opportunities such as the Mumbai Mantralaya project and other high-margin redevelopment or millland projects in Mumbai.

Source: RBS forecasts

Market data
Headquarters Malhotra Building, Connaught Place, New Delhi 110 001 Website http://indiabulls.com/ Shares in issue 401.7m Freefloat 77% Majority shareholders Promoter & Promoter group (23%), HSBC Global Investment Fund (4%), Deutsche Securities (3%)

Threats

Weak response to its near-term launches. The company does not have adequate experience of operating in the power sector and could face execution risks.
Scoring range is 1-5 (high score is good)

Country view: India

Underweight

Country rel to Asia Pacific

170 160 150 140 130

The macro picture for India has been constructive recently, with GDP and industrial production tracking in line with expectations, while portfolio allocators continue to favour the market for its domestic consumption orientation. However, these positives have already been priced in and we believe risks are rising from the increasing double deficit, demanding valuations and tightening liquidity.
The country view is set in consultation with the relevant company analyst but is the ultimate responsibility of the Strategy Team.

120 110 100 90 Aug Nov Mar 07 07 08

Jul 08

Oct 08

Feb Jun Sep Jan 09 09 09 10 MarketIndex

Apr 10

Aug 10

Competitive position Supplier power

Average competitive score:

3+ 4+

Broker recommendations
20 15 10 5 0 Buy Hold Sell

Supplier power has weakened in recent times, as most developers have already built large land banks and are not looking at acquiring new parcels unless available at very attractive prices.

Barriers to entry

3+

Real estate development is capital-intensive in nature and therefore deep pockets are a must for entering the sector.

Customer power

3-

High, especially in commercial and retail segments, due to oversupply and low demand. Also high in residential as volumes sales are seen in attractively priced affordable housing.

Substitute products

4+

Source: Bloomberg

Substitutes such as renting or building a home are common, but are not considered threats to home purchases. Almost no substitutes for commercial and retail properties.

Rivalry

3+

Rivalry among developers is benign during property upcycles, but during downturns there could be severe price cuts and therefore margin pressure.
Scoring range 1-5 (high score is good) Plus = getting better Minus = getting worse

Indiabulls Real Estate | Strategic and Competitive Overview | 17 August 2010

Recommendation structure
Absolute performance, short term (trading) recommendation: A Trading Buy recommendation implies upside of 5% or more and a Trading Sell indicates downside of 5% or more. The trading recommendation time horizon is 0-60 days. For Australian coverage, a Trading Buy recommendation implies upside of 5% or more from the suggested entry price range, and a Trading Sell recommendation implies downside of 5% or more from the suggested entry price range. The trading recommendation time horizon is 0-60 days. Absolute performance, long term (fundamental) recommendation: The recommendation is based on implied upside/downside for the stock from the target price and, except as follows, only reflects capital appreciation. A Buy/Sell implies upside/downside of 10% or more and a Hold less than 10%. For research produced by Nedbank Capital, a Buy implies upside in excess of 20%, A Sell implies an expected return less than 10%, and a Hold implies a return between 10% and 20%. For UK-based Investment Funds research, the recommendation structure is not based on upside/downside to the target price. Rather it is the subjective view of the analyst based on an assessment of the resources and track record of the fund management company. For research produced by Nedbank Capital and for research on Australian listed property trusts (LPT) or real estate investment trusts (REIT), the recommendation is based upon total return, ie, the estimated total return of capital gain, dividends and distributions received for any particular stock over the investment horizon. Performance parameters and horizon: Given the volatility of share prices and our pre-disposition not to change recommendations frequently, these performance parameters should be interpreted flexibly. Performance in this context only reflects capital appreciation and the horizon is 12 months. Market or sector view: This view is the responsibility of the strategy team and a relative call on the performance of the market/sector relative to the region. Overweight/Underweight implies upside/downside of 10% or more and Neutral implies less than 10% upside/downside. Target price: The target price is the level the stock should currently trade at if the market were to accept the analyst's view of the stock and if the necessary catalysts were in place to effect this change in perception within the performance horizon. In this way, therefore, the target price abstracts from the need to take a view on the market or sector. If it is felt that the catalysts are not fully in place to effect a re-rating of the stock to its warranted value, the target price will differ from 'fair' value.

Distribution of recommendations
The tables below show the distribution of recommendations (both long term and trading). The first column displays the distribution of recommendations globally and the second column shows the distribution for the region. Numbers in brackets show the percentage for each category where there is an investment banking relationship. These numbers include recommendations produced by third parties with which RBS has joint ventures or strategic alliances.

Long term recommendations (as at 17 Aug 2010)

Global total (IB%) Buy Add Hold Reduce Sell Total (IB%)
Source: RBS

Trading recommendations (as at 17 Aug 2010)

Global total (IB%) Trading Buy Rec 2 (0) 00 (00) Asia Pacific total (IB%) 2 (0) 00 (00)

Asia Pacific total (IB%) 398 (0) 0 (0) 232 (0) 0 (0) 58 (0) 688 (0) Trading Sell Total (IB%)
Source: RBS

683 (0) 0 (0) 414 (0) 0 (0) 97 (0) 1194 (0)

1 (0) 3 (0)

1 (0) 3 (0)

Valuation and risks to target price

Indiabulls Real Estate (RIC: INRL.BO, Rec: Buy, CP: Rs196.55, TP: Rs230.00): We value IBREL using a sum-of-the-parts model. Key risks to our target price are: 1) weak response to the recently launched and upcoming residential projects in Mumbai and other cities; 2) slower-than-expected execution; and 3) poor performance of its listed power subsidiary.

Indiabulls Real Estate coverage data Stock performance, recommendations and coverage (as at 16 Aug 2010) Trading recommendation history (as at 17 Aug 2010)
Date Rec n/a
Source: RBS

Analyst

Prakash Agarwal started covering this stock on 18 Jan 10 Source: RBS

Regulatory disclosures

Indiabulls Real Estate | Disclosures Appendix | 17 August 2010

Global disclaimer
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On a general basis, the efficacy of recommendations is a factor in the performance appraisals of analysts. ____________________________________________________________________________________________________________________________________________________ For a discussion of the valuation methodologies used to derive our price targets and the risks that could impede their achievement, please refer to our latest published research on those stocks at research.rbsm.com. Disclosures regarding companies covered by us can be found on our research website at research.rbsm.com. Our policy on managing research conflicts of interest can be found at https://research.rbsm.com/Disclosure/Disclosure.AspX?MI=2. Should you require additional information please contact the relevant research team or the author(s) of this report.

Indiabulls Real Estate | Disclosures Appendix | 17 August 2010