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Housing Development and Infrastructure
Buy for opportunity beyond
Airport rehab
Raise FY11 earnings on FSI sale; Reiterate Buy
HDIL reported net profit of Rs2.13bn, 10% ahead of our estimate due to higher
margin. More importantly, HDIL sold ~1.2mn sq ft of FSI for Rs6.5bn in Goregaon
in October and expects more such deals in near future, as demand for land in
Mumbai by developers has increased considerably. We raise our earnings est for
FY11 by 28% to Rs11.5bn (Rs8.9bn earlier) to account for the FSI sale and
reiterate our Buy rating with a PO of Rs342, implying potential upside of 35%.
Development projects to drive NAV upgrades
We expect that, over next 6 months, the importance of residential and
redevelopment projects will increase in the overall NAV for HDIL and drive NAV
upgrades and stock performance. HDIL has already launched 7mn sq ft, with a
sales value of Rs44bn, and is looking to launch another 9mn, with a sales value of
Rs70bn. We estimate that 41% of the NAV currently is from development projects
located in Mumbai. Also, an increase in FSI sales could further boost cash flow
and earnings from non-Airport projects.
Airport relocation – the only hurdle
The relocation is expected to start in November and should allay investor concern
about the Airport rehab project. HDIL has applied to the government for approval
for the remaining phases (relocation of 50,000 families) and expects to start
construction in the next 3-4 months. We expect the TDR market to remain stable
and see no downside risk to our estimate of Rs13-15bn inflow annually from TDR
sales over FY11-12.
Time to outperform
We expect HDIL to outperform from here on, as we believe that the negatives
from the Airport project are already priced in, while cash flow from non-Airport
projects will likely surprise the Street on the upside.
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