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● In our new report Dark Clouds: Prefer cash flows over leverage,
we initiate coverage of HDIL with a NEUTRAL rating and target
price of Rs189.
● HDIL has land reserves of 228 mn sq ft (including TDR and FSI)
of which 88% is located in MMR. About 44% of its land reserves
are from development rights (TDR) coming primarily from the
MIAL project. Hence, timely completion of this project is critical for
HDIL, though the project’s Phase-I is already witnessing delays.
● The Maharashtra government’s recent acceptance of the proposal
to sell additional 0.33 FSI in Mumbai suburbs for a premium is
expected to impact TDR volumes and prices negatively. HDIL’s
revenues and net income are expected to witness strong growth,
however we see significant execution risk in its projects.
● We have valued HDIL at 30% discount to March 2012 GAV. Our
March 2012 NAV of Rs295 per share includes Rs148 from
development assets, Rs165 from slum rehabilitation and
redevelopment projects and Rs38 from assets intended for lease.
Indirect Mumbai exposure through re-development
HDIL offers significant exposure to Mumbai real estate due to its
expertise in large-scale redevelopment projects in the Mumbai
Metropolitan Region (MMR). The company is currently executing the
largest slum rehabilitation project for rehabilitation of about 85,000
slum dwellers under the expansion and modernisation of Mumbai
International airport (MIAL).
HDIL has land reserves of about 228 mn sq ft (including TDR and FSI)
of which 88% reserves are located in MMR. Further, 44% of its land
reserves are composed of development rights (TDR) and the FSI
expected to be generated from its redevelopment projects.
Figure 1: Breakdown of HDIL’s land reserves
Commercial FSI MIAL Non-MIAL
(mn sq ft) Residential (sale) (Virar) TDR TDR Lease Total
Mumbai 81.6 16.2 42.9 51.1 5.8 4.0 201.5
Pune 0.4 - - - - 0.8 1.2
Hyderabad 8.0 1.9 - - - - 9.8
Kochi 6.3 0.7 - - - 8.0 15.0
Total 96.2 18.8 42.9 51.1 5.8 12.8 227.5
Source: Company data, Credit Suisse estimates
High-risk, high-return business model
Timely completion of the MIAL project is critical for HDIL, however, as
of December 2010, the project’s Phase I was delayed as the slum
dwellers have not shifted to their constructed tenements. MIAL is also
entitled to terminate the agreement in the event of any delay
exceeding 180 days. The Maharashtra government’s recent
acceptance of a proposal to sell additional 0.33 FSI in Mumbai
suburbs for premium is expected to impact TDR volumes and prices
negatively.
Declining gearing levels on equity issuances
HDIL raised Rs34.7 bn during the last 18 months from equity issuance
and warrant conversion by promoters. As a result, its net debt-toequity
declined sharply from 0.9x in March 2009 to 0.4x in March
2010 and is expected to decline further to 0.2x by March 2011. HDIL’s
operating cash flows after interest and taxes were a negative Rs10.2
bn in FY10 but are expected to improve (Rs14.3bn in FY13E).
HDIL follows the project completion method of revenue recognition, so
TDR sales get recognised as and when sales occur but development
projects kick in only during the year of completion. Residential
projects launched by HDIL in 2008-09 are expected to be complete in
2012, at which stage they will likely contribute Rs11.4 bn to FY12
revenues.
Initiate coverage with NEUTRAL, target price of Rs189
We initiate coverage of HDIL with a NEUTRAL rating and a target
price of Rs189 (at a 30% discount to forward GAV). Our March 2012
NAV of Rs295 per share includes Rs148 from development assets
and Rs165 from slum rehabilitation and redevelopment projects.
Key investment risks for HDIL
Key investment risks for HDIL include 1) timely execution of MIAL
rehabilitation project as delays could lead to penalties, 2) Mumbai
concentration risk and 3) reduction in TDR demand and subsequently
pricing following the increase in FSI in Mumbai suburbs.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
● In our new report Dark Clouds: Prefer cash flows over leverage,
we initiate coverage of HDIL with a NEUTRAL rating and target
price of Rs189.
● HDIL has land reserves of 228 mn sq ft (including TDR and FSI)
of which 88% is located in MMR. About 44% of its land reserves
are from development rights (TDR) coming primarily from the
MIAL project. Hence, timely completion of this project is critical for
HDIL, though the project’s Phase-I is already witnessing delays.
● The Maharashtra government’s recent acceptance of the proposal
to sell additional 0.33 FSI in Mumbai suburbs for a premium is
expected to impact TDR volumes and prices negatively. HDIL’s
revenues and net income are expected to witness strong growth,
however we see significant execution risk in its projects.
● We have valued HDIL at 30% discount to March 2012 GAV. Our
March 2012 NAV of Rs295 per share includes Rs148 from
development assets, Rs165 from slum rehabilitation and
redevelopment projects and Rs38 from assets intended for lease.
Indirect Mumbai exposure through re-development
HDIL offers significant exposure to Mumbai real estate due to its
expertise in large-scale redevelopment projects in the Mumbai
Metropolitan Region (MMR). The company is currently executing the
largest slum rehabilitation project for rehabilitation of about 85,000
slum dwellers under the expansion and modernisation of Mumbai
International airport (MIAL).
HDIL has land reserves of about 228 mn sq ft (including TDR and FSI)
of which 88% reserves are located in MMR. Further, 44% of its land
reserves are composed of development rights (TDR) and the FSI
expected to be generated from its redevelopment projects.
Figure 1: Breakdown of HDIL’s land reserves
Commercial FSI MIAL Non-MIAL
(mn sq ft) Residential (sale) (Virar) TDR TDR Lease Total
Mumbai 81.6 16.2 42.9 51.1 5.8 4.0 201.5
Pune 0.4 - - - - 0.8 1.2
Hyderabad 8.0 1.9 - - - - 9.8
Kochi 6.3 0.7 - - - 8.0 15.0
Total 96.2 18.8 42.9 51.1 5.8 12.8 227.5
Source: Company data, Credit Suisse estimates
High-risk, high-return business model
Timely completion of the MIAL project is critical for HDIL, however, as
of December 2010, the project’s Phase I was delayed as the slum
dwellers have not shifted to their constructed tenements. MIAL is also
entitled to terminate the agreement in the event of any delay
exceeding 180 days. The Maharashtra government’s recent
acceptance of a proposal to sell additional 0.33 FSI in Mumbai
suburbs for premium is expected to impact TDR volumes and prices
negatively.
Declining gearing levels on equity issuances
HDIL raised Rs34.7 bn during the last 18 months from equity issuance
and warrant conversion by promoters. As a result, its net debt-toequity
declined sharply from 0.9x in March 2009 to 0.4x in March
2010 and is expected to decline further to 0.2x by March 2011. HDIL’s
operating cash flows after interest and taxes were a negative Rs10.2
bn in FY10 but are expected to improve (Rs14.3bn in FY13E).
HDIL follows the project completion method of revenue recognition, so
TDR sales get recognised as and when sales occur but development
projects kick in only during the year of completion. Residential
projects launched by HDIL in 2008-09 are expected to be complete in
2012, at which stage they will likely contribute Rs11.4 bn to FY12
revenues.
Initiate coverage with NEUTRAL, target price of Rs189
We initiate coverage of HDIL with a NEUTRAL rating and a target
price of Rs189 (at a 30% discount to forward GAV). Our March 2012
NAV of Rs295 per share includes Rs148 from development assets
and Rs165 from slum rehabilitation and redevelopment projects.
Key investment risks for HDIL
Key investment risks for HDIL include 1) timely execution of MIAL
rehabilitation project as delays could lead to penalties, 2) Mumbai
concentration risk and 3) reduction in TDR demand and subsequently
pricing following the increase in FSI in Mumbai suburbs.
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