HDIL - 2Q FY11 results: revenue drops-lower FSI /TDR sales: Daiwa

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Housing Development & Infrastructure (HDIL IN) Rating:3
2Q FY11 results: revenue drops on lower FSI and TDR sales



What has changed?
 The 2Q FY11 net profit fell by 9% QoQ, driven mainly by a 17% QoQ revenue
decline. While the net debt-to-equity ratio improved sequentially due to recent
successful fundraising from market, we are concerned about the rise in receivables.


Impact
 Revenue fell by 17% QoQ to Rs3.7bn for 2Q FY11: Housing Development &
Infrastructure’s (HDIL) revenue decline was driven by: 1) lower floor-spaceindex
(FSI) sales, and 2) lower sales of Transferable Development Rights (TDR)
(1m sq ft). The TDR price was stable at Rs3,000/sq ft.
 The net profit declined by only 9% QoQ to Rs2.1bn: The milder sequential
net-profit decline relative to that for revenue was due to a higher EBITDA
margin of 64% for 2Q FY11, compared with 59% for 1Q FY11.
 The net debt-to-equity ratio dipped sequentially to 0.3x: The net-debt-to
equity ratio declined from 0.5x for 1Q FY11 to 0.3x for 2Q FY11, due to a
recent placement with qualified institutional investors (QIP) and a cash inflow
from promoter warrants. However, we are concerned about the increase in
receivables of Rs863m QoQ.

Valuation
 We maintain our six-month target price of Rs226, based on a target NAV
multiple of 1x on our end-FY12 NAV forecast. We plan to issue an update.
HDIL has sold TDRs for an average of Rs3,000/sq ft in 1H FY11 and TDR
prices are expected to remain at the same level in 2H FY11.

Catalysts and action
 We maintain our 3 (Hold) rating for HDIL. We believe our recommendation is
supported by the slowdown in residential sales volume in Mumbai, which we
expect to lead to about a 10-20% decline in property prices.