Stock To Buy: Smallcap Real Estate Stock That Has Reduced Debt By 54%, Merger Likely

Real estate stocks have been surging on rising demand and prospects for the entire sector look good. While some of the stocks have already surged, for others there exists a potential of a further upside.

Reduction in debt at Indiabulls Real Estate

There are few triggers for the stock of Indiabulls Real Estate, including an impending amalgamation/merger with the Embassy group and also a massive cut in debt. While the company did report a loss for the quarter ending June 30, 2022, there are reasons to be optimistic going forward.

The company has cut its debt from Rs 1044 crores in Q4 2022 to Rs 464 crores in the June quarter. The debt to equity is just 0.18 times, which is excellent for a real estate company.

Good project sales

The Project Net Surplus was placed at Rs 8,566 crores as on June 30, 2022, while the net surplus was Rs 1,749 crores from OC /near completed inventory.

The company has said that more than 97% inventory in key projects sold out (Blu, Sky forest, Thane Phase1, Engima & Centrum).

Merger with the Embassy Group in final stages

The merger with Embassy group is in final stages of NCLT review - next hearing in Chandigarh scheduled on 8th Sep, 2022 and this could be a possible trigger for the stock. Last year the Competition Commission of India had approved the proposed merger of Embassy Group firms, NAM Estates Pvt Ltd and Embassy One Commercial Property Developments Pvt Ltd, with Indiabulls Real Estate.

Embassy Group has around 14 per cent stake in IBREL and the same will increase to 45 per cent after the merger of assets of these two companies.

Massive land bank

The company presently also has massive land bank. It has a total of 3,280 acres, near major metropolitans, the largest among all listed players. This allows Indiabulls Real estate to develop projects to take advantage of potential opportunities. It also provides an option to monetize certain land banks in non-core areas with limited potential and enhance our presence in strategic locations. Apart from this the monetization can also be used to further reduce debt.

Indiabulls Real Estate: Stock to buy for those willing to take a risk

The merger with the Embassy Group is likely to be a big trigger for the stock, along with constant reduction in debt. We believe that the company could easily turn around in the next quarter or so. In fact, the shares of the company have been languishing, despite some stocks from the sector moving higher. The stock of Indiabulls Real Estate has hit a high of Rs 195 and a low of Rs 58. The stock is currently trading at Rs 76.

Stock can be volatile

The stock of real estate stocks are high beta stocks and can be volatile. Investors need to be careful and such stocks can be risky to buy. If you do not have an appetite for risk, do not buy into the stock.

Disclaimer

Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, and the author are not liable for any losses caused as a result of decisions based on the article.