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HDIL -Off the tarmac
HDIL’s move to deploy funds raised for future phases of airport project
into other rehab projects is a clear indication of management’s shrinking
confidence in the project, which has been moving quite slowly for the
past one year. As a result, TDR sales will shrink 50%+ YoY. Land deals
and accounting changes though will keep earnings strong near term. We
remove large part of airport project from the NAV calculation which drops
47% to Rs251/share. Target price remains at 30% discount to that.
Visibility on the progress of airport project shrinking
While 7,000 housing units constructed by HDIL are ready to move in, the
process of physical shifting is yet to commence – a delay of c.1 year already.
Government officials are yet, a long way, from finalising the survey to identify
eligible slum dwellers. The change at the senior politicians / government
bureaucrats has further slowed down the process. HDIL has already invested
the Sep’10 QIP money, raised for the airport project, in 3 other projects,
clearly signalling that the company also sees substantial delays in the project.
TDR generation will reduce to a trickle
Airport rehab project has been the source of TDR generation for HDIL. Over
last 9 quarters, HDIL sold 12m sf of TDRs generating Rs11bn of cumulative
profits. We now, believe that TDR generation will slow down considerably and
factor in only 2 and 1.5m sf of TDR sales in FY12 and FY13 respectively as
against 4 and 6.5m sf earlier. Additionally, we have removed from the model,
TDR sales beyond FY14 and also removed the accretion of 65 acre of airport
land. This lowers Mar’12 NAV estimate by 49% to Rs239/share.
Accounting changes, FSI sale drive near-term earnings upgrade
We raise FY11 earnings by 10% to factor in recent FSI sales deal. Also, the
company will change the accounting policy from Project Completion Method
(PCM) to Percentage of Completion Method (PoCM) from April’11 onwards.
This would create a one-time positive profit impact of Rs6bn during 1QFY12.
The recurring earnings for FY12 will be 38% lower than reported earnings.
Need to be more serious on debt reduction
The stock has corrected significantly over the last three months on the
concerns on the slow progress of airport projects and appears attractive on
valuation parameters. We, however, note that the company has disappointed
significantly and materially on the most important parameter of net debt
trend. We believe that a significant net debt reduction will be critical for any
meaningful rerating of the stock. Potential resumption of the airport rehab
project will be a positive for the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
HDIL -Off the tarmac
HDIL’s move to deploy funds raised for future phases of airport project
into other rehab projects is a clear indication of management’s shrinking
confidence in the project, which has been moving quite slowly for the
past one year. As a result, TDR sales will shrink 50%+ YoY. Land deals
and accounting changes though will keep earnings strong near term. We
remove large part of airport project from the NAV calculation which drops
47% to Rs251/share. Target price remains at 30% discount to that.
Visibility on the progress of airport project shrinking
While 7,000 housing units constructed by HDIL are ready to move in, the
process of physical shifting is yet to commence – a delay of c.1 year already.
Government officials are yet, a long way, from finalising the survey to identify
eligible slum dwellers. The change at the senior politicians / government
bureaucrats has further slowed down the process. HDIL has already invested
the Sep’10 QIP money, raised for the airport project, in 3 other projects,
clearly signalling that the company also sees substantial delays in the project.
TDR generation will reduce to a trickle
Airport rehab project has been the source of TDR generation for HDIL. Over
last 9 quarters, HDIL sold 12m sf of TDRs generating Rs11bn of cumulative
profits. We now, believe that TDR generation will slow down considerably and
factor in only 2 and 1.5m sf of TDR sales in FY12 and FY13 respectively as
against 4 and 6.5m sf earlier. Additionally, we have removed from the model,
TDR sales beyond FY14 and also removed the accretion of 65 acre of airport
land. This lowers Mar’12 NAV estimate by 49% to Rs239/share.
Accounting changes, FSI sale drive near-term earnings upgrade
We raise FY11 earnings by 10% to factor in recent FSI sales deal. Also, the
company will change the accounting policy from Project Completion Method
(PCM) to Percentage of Completion Method (PoCM) from April’11 onwards.
This would create a one-time positive profit impact of Rs6bn during 1QFY12.
The recurring earnings for FY12 will be 38% lower than reported earnings.
Need to be more serious on debt reduction
The stock has corrected significantly over the last three months on the
concerns on the slow progress of airport projects and appears attractive on
valuation parameters. We, however, note that the company has disappointed
significantly and materially on the most important parameter of net debt
trend. We believe that a significant net debt reduction will be critical for any
meaningful rerating of the stock. Potential resumption of the airport rehab
project will be a positive for the stock.
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