HDIL- 2Q FY11: Higher TDR realization drives the earnings beat:: JPMorgan

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Housing Development and
Infrastructure Ltd. (HDIL)
Overweight
HDIL.BO, HDIL IN
2Q FY11: Higher TDR realization drives the earnings
beat; Phase I handover remains a key overhang


• 2Q FY11 results beat expectations: HDIL reported 2Q FY11 net earnings
of Rs2.1B (down 9% Q/Q, up 43% Y/Y), ahead of our estimate of Rs1.9B
driven by higher-than-expected TDR realization of Rs3,000psf (vs. JPMe –
Rs2,9000psf). TDR volumes remained largely stable during the Q at 1msf,
thereby taking 1H volumes to 2.1msf. 2Q results included Rs700MM of
FSI sales (Rs1.3B in 1Q). Gross debt (Rs41B) remained largely stable Q/Q.


• Visibility improving on Phase II of Airport project: As per recent news
reports (source: DNA), HDIL is close to buying a 105-acre land parcel in
Kanjurmarg (a central Mumbai suburb) for Rs7B. We believe that this
acquisition, if concluded, should entirely cover its land requirements for
phase II/III of the airport project. While management confirmed that it was
in the advanced stage of tying up land for Phase II/III, it did not provide
any details on this. On the Phase I handover (53 acres, 25,000 families), the
company is in discussions with the concerned government authorities;
however there are no clear timelines on this as yet. Delays in the Phase I
handover remain a key overhang for the stock.

• Recent QIP issuance closes the funding gap for the airport project:
HDIL has Rs15B of liquid funds post the recent QIP issuance. In addition
to this, the company recently closed the sale of a land parcel (FSI) in
Goregoan for Rs6.5B (1.1msf) in Oct. (cash to accrue over 2H). These
funds would primarily be used to (a) tie up land parcels for Phase II/III of
the airport project, and b) new project acquisitions – the company added
13msf of projects in Sep-Q (Novinon Property) and is proposing to
redevelop Motilal Nagar in Goregaon (15msf in prime Mumbai suburb).

• Sales momentum in Mumbai remains healthy; launches to accelerate in
2H: HDIL has achieved cumulative sales bookings of Rs50B on 7msf
launched to date. Encouraged by the strong response to its residential
launches over the past year, HDIL has outlined an aggressive launch target
for FY11/12 comprising a) 9msf in Mumbai suburbs, b) Palghar township
project (12msf), and Kochi project (6.3msf) to be launched in phases.

• We maintain OW with a new Mar-11 PT of Rs330 and revised FY11/12
EPS estimates (-6%/-34%) as we factor in the recent equity issuance and
higher FSI sales in FY11 and remove land sales for FY12. A key risk to our
price target is a slowdown in the Mumbai RE market.