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EARNINGS REVIEW
Housing Development & Infrastructure
Buy
In line with expectations; TDR pricing robust
What surprised us
HDIL reported in-line 2QFY11 PAT of Rs2.1 bn and sales of Rs3.7 bn.
EBITDA margin of 64%, increased by 436 bp qoq on account of better TDR
pricing and reduced contribution from lower-margin land development in
the Vasai-Virar region. HDIL also reported a land sale of Rs6.5 bn in
October 2010 in Goregaon with a likely PAT margin of 60%, which we now
incorporate into our FY11E PAT.
Highlights of results and conf call: 1)
Mgmt guided for TDR pricing to stabilize at Rs3,200/sq. ft. We now assume
Rs3,000/sq. ft for FY11E-12E vs. Rs2,700 for FY11E and Rs2,835 for FY12E
earlier. 2) Good response to recently launched projects in Mumbai. 3)
Investments of Rs2 bn into land. 4) Increase in customer advances by
Rs2.2 bn to Rs9.8 bn at end-2QFY11.
What to do with the stock
We incorporate higher prices into our estimates, while lowering our TDR
volume estimates to 5 mn sq. ft from 6 mn sq. ft. in FY11E and FY12E. Our
FY11E EPS estimates are revised by 38% to Rs29.96 (after incorporating
the land sale mentioned above), while FY12E/FY13E EPS estimates are
revised by -1%. Ongoing/Forthcoming residential projects indicate a
cumulative sales value of Rs150 bn and cash flow potential of Rs102 bn
against present EV of Rs115 bn. We retain HDIL on the Conviction Buy List
with a 12-month target price of Rs371. Our TP which is set at a 25%
discount to our FY2012E NAV of Rs494 is unchanged, as we had already
included the land parcel sold in our NAV. The stock looks attractively
valued trading at FY2012E P/B of 1.0X vs. sector avg. of 1.6X. Key risks
include execution delays inherent in slum rehabilitation projects, sharp
correction in prices and fall in Mumbai residential property demand.
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