Disclaimer: This is not financial advice or a buy or sell recommendation, I am not a SEBI Registered Investment Advisor.

Background On Feb 12, 2022 shareholders of Indiabulls Real Estate will vote on merger with Embassy Group (a Southern India based Real Estate developer)

The merged entity will be backed by Blackstone (~16% ownership) and Embassy Group (~44% ownership)

Blackstone has signed non biding letter of intent to further invest and raise their ownership in the merged entity post all approvals.

Existing Indiabulls promoter have diluted all their holdings in the company and are left with 0.26% (12 lakh shares)

Investment Rationale

The merged entity will have large land bank which they have started to monetize (~560cr sale of land in Gurgaon to Elan Group), further such sales of land parcels could generate significant cash flows

Embassy Group mostly develops commercial and luxury real estate and wants to pursue the same via the listed entity upon merger. A key development project is Embassy Bayview, a Juhu based luxury real estate project in Mumbai Metropolitan Region.

Existing properties of Indiabulls are 90% sold out in areas of Gurgaon and with a little push properties in MMR shouldn’t be too hard to sell

Embassy group will continue to pursue commercial projects as well from the listed entity but via asset light Joint Development Agreements (JDA). An example of this is their $500 Million JDA with Ivanhoe Group (Quebec based pension fund’s real estate arm). As part of the JDA, Ivanhoe will invest $300 Million upfront and Embassy will bring the land they own + execute all the development.

Blackstone is a long term investor and other FIIs like Ballie Gifford are consistently raising their ownership - there is a chance that float of the company gets cornered eventually.

Existing entity (Indiabulls) share price was beaten down due to past corporate governance issues, conglomerate discounts, bad business execution and capital allocation.

These issues should resolve post takeover by Embassy.

Most of Embassy’s current residential projects are in North Bangalore region, the only area of Bangalore that’s left to develop, there is no other space available in central city. North Bangalore is the fast growing residential region and Embassy’s projects are largely concentrated around luxury real estate (villa, high rise luxury apartments)

The new promoter is capital allocation conscious and has grown his empire by controlling debt, efficient use of capital and building trust with institutional backers and clients via transparency.

Finally, Embassy has its own listed REIT, the company has the advantage to offload income producing completed real estate projects to the REIT, there by liquidating capital invested in developing such assets.

Risks and Valuations

The merger is being done at Rs 92.5 per Indiabulls share, current share price is Rs 114.3 (as of 11th Apr 2022), a 23.5% premium to merger price.