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Mumbai’s airport modernization project has been getting delayed in a classic
case of political compulsions leading to policy confusion and limited
coordination between various agencies. Deadline on resettlement has been
shifted over and over denting confidence. Delays on this account has led to
sharp de-rating of airport exposed stocks (GVK and HDIL) with the market
writing down most of the value from the project for these two companies.
However, things seem to be improving at the margin (albeit slowly). Given
overall weak sentiment over RE and Infra space for now, we think the market
will unlikely price ahead and will probably await firm clarity from the
government on future policy and course of execution. However, in case it
comes, we believe upside on airport exposed stocks (GVK/ HDIL) could be
meaningful. Both classify as high risk-reward plays on the same, in our view.
• Ray of hope now emerging? Government machinery now seems to be
swinging in action, with some earnest efforts being made to sort out the
rehab problem. The aviation ministry is asking for a speedier project
execution given Mumbai airport will have over 40MM passengers by 2012.
As recently as Monday, Mumbai Chief Minister has convened a meeting of
high profile officials to sort out the problem. The government, on its part,
has assured that it will have an inclusive policy on rehabilitation FAIRLY
SOON and may explore ways to relax the eligibility norms. See the note for
more details. This, in our view, can help improve visibility on resettlement
(even if it means some additional delay) and could provide a clearer
roadmap to eventual redevelopment. We believe such an announcement
could be an important driver for the stocks in the near term.
• Stocks to watch out-
1. HDIL: The airport project on a DCF basis is worth Rs110/share. Of
this as of now we value only Rs11/share for the TDR yet to accrue
from phase 1 in our PT of Rs160. This after writing down remaining
phases of the project and investment in them to zero. Apart from the
airport there are legal issues that the company needs to resolve in its
SRA acquisitions (BKC/ Malad). If we write them down to zero as
well our PT would reduce by additional Rs18 per share to Rs142.
2. GVK - Airport-real estate now accounts for 25% of our SOTP value:
this comprises 13M sft at a discounted value of Rs2K psf. To bridge
the funding gap, in our view, it is important that the company achieves
2M sft of real estate lease-outs in FY12. MMRDA’s stamp of
approval on the masterplan is the next key step before actual leaseouts
happen.
Mumbai airport- Happening not happening?
Progress on Mumbai airport modernization has been impeded, given pending
rehabilitation on the project. The redevelopment of the airport primarily hinges on
the acquisition of over 276 acres of land, which is occupied by over 80,000 slums.
Delays on this account have to led to sharp de-rating of airport exposed stocks (GVK
and HDIL) with the market writing down almost all the value from the project for
these two companies. The primary issue is on eligibility norms that have posed
roadblocks to the plan to rehabilitate the existing tenants. A large majority of slumdwellers
(almost 60%) do not fit the January 1, 2000, norm set for rehabilitation in
the project.
Incrementally, however, government machinery now seems to be swinging into
action , trying in earnest to sort out the problem. The aviation ministry is asking for a
speedier project execution, which has which said that any delay in expansion of
Mumbai airport would result in utter chaos. Quoting an aviation ministry official a
newspaper (Mumbai Mirror) reported “By 2012, we estimate the passenger growth to
cross 40 million. How will Mumbai airport handle it?”
As per newsreports (Mumbai Mirror, TOI, Indian express) Recently (Monday)
the Chief Minister of Maharashtra convened a meeting of high profile
government officials (including MMRDA commissioner , BMC chief, Principal
Secretary -Urban Development, Suburban Collector, Suburban District
Guardian Minister) to sort out the problem.
The CM has said it will come out with an inclusive policy on rehabilitation fairly
soon and has asked his team to explore ways to relax the eligibility norm.
The options on the table are:
• Devising a special rehabilitation policy on the lines of the Central schemes like
basic services for urban poor which do not specify any cut-off date for
rehabilitation.
• Option of announcing separate schemes for eligible and ineligible slum-dwellers.
Chief secretary has been asked to coordinate with the officials concerned and
look for a solution in this regard.
In this regard:
• The suburban collector been asked to complete the survey for deciding the
eligibility. As the survey exercise has been completed in pockets, it has met with
stiff resistance from slum-dwellers at a few sites. As per MIAL, a decision on
slum-dwellers eligible for shifting in phase 1 of the project needed to be taken on
a priority basis. Work for an elevated connecting road and an upgraded runway
are to be carried out at these sites.
• The MMRDA commissioner has been asked to coordinate the work of
accommodating the eligible slum dwellers in flats constructed for the project.
• The Collector has been asked to scout for the required land for phase 2 and 3 of
the project (previously it seemed it was the responsibility of HDIL). At the
moment the government seems to have limited answers on where the incremental
land may come from. MIAL as per news, on its part has demanded an option of
higher FSI or tapping land in a no development zone for rehabilitation. The
option of utilizing a plot of land at Bhandup has also been put across. But as yet
none of these have been finalized by the government.
A further complication to the above is the upcoming elections for civic body in
Jan/Feb next year. The project serves as a vote bank and any discrimination on the
basis of eligibility norms could pose problems ahead of upcoming elections.
In the light of all this, probably the easiest solution is to make as large a population
as possible eligible. The only complication in that case is this norm will then be
extended to almost all other SRA projects in the city.
Given all this we are not surprised that markets have chosen to completely ignore the
project and discount the value down to zero. However, any improvement on visibility
(even delayed) on rehab could mean a sharp upward spike in the valuations of both
the companies, in our view.
Stock impact
HDIL: The airport project on a DCF basis is worth Rs110/share. Of this, as of now,
we value only Rs11/share for the TDR yet to accrue from phase 1 in our PT of
Rs160. This, after writing down the remaining phases of the project and investment
in them to zero.
Apart from the airport there are legal issues that the company needs to resolve in its
SRA acquisitions (BKC/ Malad). If we write them down to zero as well, our PT
would reduce by an additional Rs18 per share (Rs 7.5B investment) to Rs142.
Under the agreement with MIAL (as we understand it), HDIL was to scout for land
for rehab, construct tenements and hand it over to the government in return for TDRs
and some share of area in the land parcel. However, now with the government
scouting for land, the company’s efforts on securing land for phase 2/3 probably are
not required. This means that the company could lose some land TDR (around 6
msf). The market price at the moment however completely discounts the airport
project to zero. Hence any progress in terms of resettlement might actually be a
positive.
Our SOTP Mar-12 PT of Rs160/share is based on a) DCF of next five year sales in
Mumbai (1.6-1.7msf pa) and Virar Vasai (3.5-4msf pa); (b) Remaining Mumbai land
at cost ; (c) Remaining Virar Vasai land at Rs300psf; and (d) Airport project at
Rs11/share valuing only 3msf of TDR yet to accrue from phase 1. Key risks are 1)
Upside- Clarity on airport project and rehab resettlement 2) Downside- Further
slowdown in transaction volumes in Mumbai beyond what we have modeled. Our
new PT implies 25% discount to our forward (FY12) NAV estimate.
GVK - After our recent downgrade, airport-real estate now accounts for 25% of our
GVK value: this comprises 13M sft at a discounted value of Rs2K psf. Chronic rehab
issues had prompted our steep haircut to fair value. We also assume 2M sft of real
estate lease-outs in FY12 to result in an upfront cash inflow of Rs8B: this is crucial
to bridge the funding gap for the airport. Based on our recent discussions with the
management, MMRDA’s stamp of approval on the masterplan is the next key step
before actual lease-outs. Senior ministerial intervention, coupled with relaxation of
norms, is an important milestone towards potential real estate monetisation, in our
view. It would also aid runway up gradation and highway connectivity, which form
part of the airport modernization project.
Our SOTP based Mar-12 PT of Rs 31/share includes a) Rs24 for Mumbai airport and
real estate, b) Rs7 for Bangalore core airport c) Rs14 for power assets and d) Rs3 for
the roads segment. Out PT is at a 20% discount to fair value given funding and capex
concerns. Potential equity dilution due to equity requirement for additional capex
plans is a key downside risk to our price target and estimates.
Approval for monetization of Mumbai airport and clarity on airport tariffs and a
favorable outcome thereof are positive risks.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mumbai’s airport modernization project has been getting delayed in a classic
case of political compulsions leading to policy confusion and limited
coordination between various agencies. Deadline on resettlement has been
shifted over and over denting confidence. Delays on this account has led to
sharp de-rating of airport exposed stocks (GVK and HDIL) with the market
writing down most of the value from the project for these two companies.
However, things seem to be improving at the margin (albeit slowly). Given
overall weak sentiment over RE and Infra space for now, we think the market
will unlikely price ahead and will probably await firm clarity from the
government on future policy and course of execution. However, in case it
comes, we believe upside on airport exposed stocks (GVK/ HDIL) could be
meaningful. Both classify as high risk-reward plays on the same, in our view.
• Ray of hope now emerging? Government machinery now seems to be
swinging in action, with some earnest efforts being made to sort out the
rehab problem. The aviation ministry is asking for a speedier project
execution given Mumbai airport will have over 40MM passengers by 2012.
As recently as Monday, Mumbai Chief Minister has convened a meeting of
high profile officials to sort out the problem. The government, on its part,
has assured that it will have an inclusive policy on rehabilitation FAIRLY
SOON and may explore ways to relax the eligibility norms. See the note for
more details. This, in our view, can help improve visibility on resettlement
(even if it means some additional delay) and could provide a clearer
roadmap to eventual redevelopment. We believe such an announcement
could be an important driver for the stocks in the near term.
• Stocks to watch out-
1. HDIL: The airport project on a DCF basis is worth Rs110/share. Of
this as of now we value only Rs11/share for the TDR yet to accrue
from phase 1 in our PT of Rs160. This after writing down remaining
phases of the project and investment in them to zero. Apart from the
airport there are legal issues that the company needs to resolve in its
SRA acquisitions (BKC/ Malad). If we write them down to zero as
well our PT would reduce by additional Rs18 per share to Rs142.
2. GVK - Airport-real estate now accounts for 25% of our SOTP value:
this comprises 13M sft at a discounted value of Rs2K psf. To bridge
the funding gap, in our view, it is important that the company achieves
2M sft of real estate lease-outs in FY12. MMRDA’s stamp of
approval on the masterplan is the next key step before actual leaseouts
happen.
Mumbai airport- Happening not happening?
Progress on Mumbai airport modernization has been impeded, given pending
rehabilitation on the project. The redevelopment of the airport primarily hinges on
the acquisition of over 276 acres of land, which is occupied by over 80,000 slums.
Delays on this account have to led to sharp de-rating of airport exposed stocks (GVK
and HDIL) with the market writing down almost all the value from the project for
these two companies. The primary issue is on eligibility norms that have posed
roadblocks to the plan to rehabilitate the existing tenants. A large majority of slumdwellers
(almost 60%) do not fit the January 1, 2000, norm set for rehabilitation in
the project.
Incrementally, however, government machinery now seems to be swinging into
action , trying in earnest to sort out the problem. The aviation ministry is asking for a
speedier project execution, which has which said that any delay in expansion of
Mumbai airport would result in utter chaos. Quoting an aviation ministry official a
newspaper (Mumbai Mirror) reported “By 2012, we estimate the passenger growth to
cross 40 million. How will Mumbai airport handle it?”
As per newsreports (Mumbai Mirror, TOI, Indian express) Recently (Monday)
the Chief Minister of Maharashtra convened a meeting of high profile
government officials (including MMRDA commissioner , BMC chief, Principal
Secretary -Urban Development, Suburban Collector, Suburban District
Guardian Minister) to sort out the problem.
The CM has said it will come out with an inclusive policy on rehabilitation fairly
soon and has asked his team to explore ways to relax the eligibility norm.
The options on the table are:
• Devising a special rehabilitation policy on the lines of the Central schemes like
basic services for urban poor which do not specify any cut-off date for
rehabilitation.
• Option of announcing separate schemes for eligible and ineligible slum-dwellers.
Chief secretary has been asked to coordinate with the officials concerned and
look for a solution in this regard.
In this regard:
• The suburban collector been asked to complete the survey for deciding the
eligibility. As the survey exercise has been completed in pockets, it has met with
stiff resistance from slum-dwellers at a few sites. As per MIAL, a decision on
slum-dwellers eligible for shifting in phase 1 of the project needed to be taken on
a priority basis. Work for an elevated connecting road and an upgraded runway
are to be carried out at these sites.
• The MMRDA commissioner has been asked to coordinate the work of
accommodating the eligible slum dwellers in flats constructed for the project.
• The Collector has been asked to scout for the required land for phase 2 and 3 of
the project (previously it seemed it was the responsibility of HDIL). At the
moment the government seems to have limited answers on where the incremental
land may come from. MIAL as per news, on its part has demanded an option of
higher FSI or tapping land in a no development zone for rehabilitation. The
option of utilizing a plot of land at Bhandup has also been put across. But as yet
none of these have been finalized by the government.
A further complication to the above is the upcoming elections for civic body in
Jan/Feb next year. The project serves as a vote bank and any discrimination on the
basis of eligibility norms could pose problems ahead of upcoming elections.
In the light of all this, probably the easiest solution is to make as large a population
as possible eligible. The only complication in that case is this norm will then be
extended to almost all other SRA projects in the city.
Given all this we are not surprised that markets have chosen to completely ignore the
project and discount the value down to zero. However, any improvement on visibility
(even delayed) on rehab could mean a sharp upward spike in the valuations of both
the companies, in our view.
Stock impact
HDIL: The airport project on a DCF basis is worth Rs110/share. Of this, as of now,
we value only Rs11/share for the TDR yet to accrue from phase 1 in our PT of
Rs160. This, after writing down the remaining phases of the project and investment
in them to zero.
Apart from the airport there are legal issues that the company needs to resolve in its
SRA acquisitions (BKC/ Malad). If we write them down to zero as well, our PT
would reduce by an additional Rs18 per share (Rs 7.5B investment) to Rs142.
Under the agreement with MIAL (as we understand it), HDIL was to scout for land
for rehab, construct tenements and hand it over to the government in return for TDRs
and some share of area in the land parcel. However, now with the government
scouting for land, the company’s efforts on securing land for phase 2/3 probably are
not required. This means that the company could lose some land TDR (around 6
msf). The market price at the moment however completely discounts the airport
project to zero. Hence any progress in terms of resettlement might actually be a
positive.
Our SOTP Mar-12 PT of Rs160/share is based on a) DCF of next five year sales in
Mumbai (1.6-1.7msf pa) and Virar Vasai (3.5-4msf pa); (b) Remaining Mumbai land
at cost ; (c) Remaining Virar Vasai land at Rs300psf; and (d) Airport project at
Rs11/share valuing only 3msf of TDR yet to accrue from phase 1. Key risks are 1)
Upside- Clarity on airport project and rehab resettlement 2) Downside- Further
slowdown in transaction volumes in Mumbai beyond what we have modeled. Our
new PT implies 25% discount to our forward (FY12) NAV estimate.
GVK - After our recent downgrade, airport-real estate now accounts for 25% of our
GVK value: this comprises 13M sft at a discounted value of Rs2K psf. Chronic rehab
issues had prompted our steep haircut to fair value. We also assume 2M sft of real
estate lease-outs in FY12 to result in an upfront cash inflow of Rs8B: this is crucial
to bridge the funding gap for the airport. Based on our recent discussions with the
management, MMRDA’s stamp of approval on the masterplan is the next key step
before actual lease-outs. Senior ministerial intervention, coupled with relaxation of
norms, is an important milestone towards potential real estate monetisation, in our
view. It would also aid runway up gradation and highway connectivity, which form
part of the airport modernization project.
Our SOTP based Mar-12 PT of Rs 31/share includes a) Rs24 for Mumbai airport and
real estate, b) Rs7 for Bangalore core airport c) Rs14 for power assets and d) Rs3 for
the roads segment. Out PT is at a 20% discount to fair value given funding and capex
concerns. Potential equity dilution due to equity requirement for additional capex
plans is a key downside risk to our price target and estimates.
Approval for monetization of Mumbai airport and clarity on airport tariffs and a
favorable outcome thereof are positive risks.
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