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BL Research Bureau

Plans by Indiabulls Real Estate to significantly expand its equity and foray into new businesses such as telecom and retail could call for caution while investing in the stock. In a move that is among the largest investments by a promoter in a listed real estate company, promoters of Indiabulls Real Estate will be issued 4.3 crore preferential warrants for Rs 2,322 crore. The fully convertible warrants (into equity shares of a similar number) would have a conversion price of Rs 540 per share, a discount of 14 per cent to the stock’s closing price on Wednesday.

The additional shares may expand equity by about 30 per cent. In August, the company made a similar allotment of 1.5 crore warrants at Rs 300 per share (again at a discount to the then market price of Rs 518). The conversion of these warrants would result in the promoters upping their stake from 30.6 per cent to about 45 per cent in the company.

The company also plans to seek members’ approval to invest or lend Rs 1,000 crore to Indiabulls Wholesale Services. This suggests that the company may be looking at utilising the funds infused by promoters in its proposed retail foray.

Since its demerger from Indiabulls Financial Services, the realty company has come up with a number of plans including development of the Jupiter Mills and Elphinstone Mills for commercial space and a 3000-acre special economic zone in Nashik.

The company’s infrastructure subsidiary, which is to develop the SEZ, is reported to be looking at power projects. With sizeable projects in hand and a limited track record, the company’s foray into retail and telecom (it has applied for telecom licences), makes it a case of too many plans-in-hand. The massive equity expansion of over 30 per cent, (on conversion of all warrants) therefore, brings the risk of earnings dilution in the medium-term.

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