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1Q12 results were inline. As MIAL continues to face delays, HDIL shifts its focus to FSI sales to
drive near term cashflows and expects 2H revenues to be boosted by revenue recognition on
projects due for completion. Approval delays remain a challenge in Mumbai, where HDIL is a key
player. Buy on attractive valuations.
Inline 1Q revenues; Focus shifts from TDR to FSI sale
HDIL reported 1Q12 revenues of Rs5.0bn (11% yoy) vs. our estimate of Rs5.1bn. Free Sale
Index* (FSI) sale contributed Rs3.3bn (66% of 1Q revenues) while sale from Transfer of
Development Rights# (TDR ) was at Rs1.6bn (34%). We observe that TDR volumes and
prices have been declining since 3Q11 (TDR volumes declined from 1.25msf in 3Q11 to
0.86msf in 4Q and now to 0.65msf coupled with prices declining from Rs3,120psf to
Rs2,600psf and now to Rs2,500psf over the same period) given the headwinds in the Mumbai
real estate market.
Management expects the TDR sales run rate to slow down due to the slower approval
process in Mumbai International Airport Pvt. Ltd (MIAL) and hence the shift of focus from
TDRs to FSI sales (66% of 1Q revenues). While revenue recognition from FSI sale of its
Andheri (Popular Car Bazaar) project is completed (recognised in 4Q11-1Q12), near term FSI
sales (2Q-4Q12) would be driven by its Goregaon (Siddharth nagar) project owned by its
subsidiary Guruashish. Management expects FSI sale of Rs7-10bn from this project. We note
that this (capturing the FSI sales of its subsidiaries) has been the key reason for HDIL to start
reporting interim results on a consolidated basis.
Management guides to a stronger 2HFY12
Management guides to a stronger 2HFY12 boosted by revenue recognition of its three
residential projects – Premier (Kurla), Galaxy (Kurla) and Metropolis (Andheri) in Mumbai and
its Industrial Park project in Virar. We note that the estimated sales potential of these four
projects is Rs17.8bn of which Rs16.9bn has already been sold but not reflected in the Income
statement as yet.
This would be coupled with FSI sale in Goregaon (2Q-4Q12) and Vasai-Virar region (2Q12 -
onwards). Management stated that its margin for Vasai-Virar region is high with average
realization of Rs900-1000psf compared to land and infrastructure cost of Rs150psf.
The company also expects to launch residential projects in Shahad and Panvel post the
monsoons.
The company pegs the estimated sales potential of its ongoing projects at Rs64bn (Rs58bn
as of end-March 2011) with additional income from fees and charges of Rs3.2bn (Rs2.9bn).
Of this, properties sold were Rs46bn (Rs44bn) or 72%.
EBITDA margin contraction (yoy) in line with expectations
1Q12 EBITDA was Rs2.7bn (-1% yoy) with EBITDA margin at 52.9% ( vs. 59.3% in 1Q11 and
48.8% in 4Q11). We highlight that the yoy EBITDA margin contraction is inline with our
expectations due to the declining TDR prices (Rs2,500psf in 1Q12 vs. Rs2,850psf in 1Q11).
However, despite TDR prices in 1Q12 being marginally lower than that of 1Q11, EBITDA
margin recovered on a sequential basis due to higher contribution from the FSI sale.
Higher tax rate of 26.1% vs. 15.8% in 1Q11 and our estimate of 20.0% resulted in PAT
declining by 11% yoy to Rs2.1bn, in line with our estimate.
Tax rate was higher due to greater contribution from FSI sale which gets fully taxed.
Management guides to tax rate of 25-30% for FY12 vs. 16% in FY11 due to higher tax rate
associated with sale of FSI and residential projects.
Balance sheet remains stable
Net debt and gearing have remained largely flat sequentially at Rs39.2bn and 40%
respectively. Management expects to reduce debt by 15-20% by end-FY12.
Debtor days and creditor days have also remained flat sequentially at 61 and 76 days
respectively
Net cash from operations during the quarter was modest at Rs359m (vs Rs 564m in 4Q11).
While Mumbai headwinds a concern; Buy HDIL on attractive valuations
Proposal by the Maharashtra Government, to amend the way FSI is calculated has led to a
‘wait and watch’ approach by both the developers and the customers affecting Mumbai
property market.
Management has stated that execution of MIAL Phase I is on track and expects the shifting of
families to pick up speed post the monsoons. While the company awaits approval to start off
the Phase II, it still expects to generate about 3-5msf from MIAL Phase I.
Our current SOTP-based target price of Rs225/share is based on an end-FY12F DCF value
of Rs92/sh for MIAL (post 50% execution risk discount), Rs200/sh for non-MIAL projects (post
20% execution risk discount) and Rs31/sh for its new redevelopment projects (1x investment
cost), reduced by Rs98/sh for debt. Buy on attractive valuations.
# Transfer of Development Rights (TDR ) - is a transferable rights in a certificate of built up
area in lieu of the area surrendered or social infrastructure work undergone, so that he can
use extra built up area either himself or transfer it to another for an agreed sum of money.
* Free Sale Index (FSI) - Floor Space Index (FSI) or Floor Area Ratio (FAR) is the ratio of
total floor space to plot size
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
1Q12 results were inline. As MIAL continues to face delays, HDIL shifts its focus to FSI sales to
drive near term cashflows and expects 2H revenues to be boosted by revenue recognition on
projects due for completion. Approval delays remain a challenge in Mumbai, where HDIL is a key
player. Buy on attractive valuations.
Inline 1Q revenues; Focus shifts from TDR to FSI sale
HDIL reported 1Q12 revenues of Rs5.0bn (11% yoy) vs. our estimate of Rs5.1bn. Free Sale
Index* (FSI) sale contributed Rs3.3bn (66% of 1Q revenues) while sale from Transfer of
Development Rights# (TDR ) was at Rs1.6bn (34%). We observe that TDR volumes and
prices have been declining since 3Q11 (TDR volumes declined from 1.25msf in 3Q11 to
0.86msf in 4Q and now to 0.65msf coupled with prices declining from Rs3,120psf to
Rs2,600psf and now to Rs2,500psf over the same period) given the headwinds in the Mumbai
real estate market.
Management expects the TDR sales run rate to slow down due to the slower approval
process in Mumbai International Airport Pvt. Ltd (MIAL) and hence the shift of focus from
TDRs to FSI sales (66% of 1Q revenues). While revenue recognition from FSI sale of its
Andheri (Popular Car Bazaar) project is completed (recognised in 4Q11-1Q12), near term FSI
sales (2Q-4Q12) would be driven by its Goregaon (Siddharth nagar) project owned by its
subsidiary Guruashish. Management expects FSI sale of Rs7-10bn from this project. We note
that this (capturing the FSI sales of its subsidiaries) has been the key reason for HDIL to start
reporting interim results on a consolidated basis.
Management guides to a stronger 2HFY12
Management guides to a stronger 2HFY12 boosted by revenue recognition of its three
residential projects – Premier (Kurla), Galaxy (Kurla) and Metropolis (Andheri) in Mumbai and
its Industrial Park project in Virar. We note that the estimated sales potential of these four
projects is Rs17.8bn of which Rs16.9bn has already been sold but not reflected in the Income
statement as yet.
This would be coupled with FSI sale in Goregaon (2Q-4Q12) and Vasai-Virar region (2Q12 -
onwards). Management stated that its margin for Vasai-Virar region is high with average
realization of Rs900-1000psf compared to land and infrastructure cost of Rs150psf.
The company also expects to launch residential projects in Shahad and Panvel post the
monsoons.
The company pegs the estimated sales potential of its ongoing projects at Rs64bn (Rs58bn
as of end-March 2011) with additional income from fees and charges of Rs3.2bn (Rs2.9bn).
Of this, properties sold were Rs46bn (Rs44bn) or 72%.
EBITDA margin contraction (yoy) in line with expectations
1Q12 EBITDA was Rs2.7bn (-1% yoy) with EBITDA margin at 52.9% ( vs. 59.3% in 1Q11 and
48.8% in 4Q11). We highlight that the yoy EBITDA margin contraction is inline with our
expectations due to the declining TDR prices (Rs2,500psf in 1Q12 vs. Rs2,850psf in 1Q11).
However, despite TDR prices in 1Q12 being marginally lower than that of 1Q11, EBITDA
margin recovered on a sequential basis due to higher contribution from the FSI sale.
Higher tax rate of 26.1% vs. 15.8% in 1Q11 and our estimate of 20.0% resulted in PAT
declining by 11% yoy to Rs2.1bn, in line with our estimate.
Tax rate was higher due to greater contribution from FSI sale which gets fully taxed.
Management guides to tax rate of 25-30% for FY12 vs. 16% in FY11 due to higher tax rate
associated with sale of FSI and residential projects.
Balance sheet remains stable
Net debt and gearing have remained largely flat sequentially at Rs39.2bn and 40%
respectively. Management expects to reduce debt by 15-20% by end-FY12.
Debtor days and creditor days have also remained flat sequentially at 61 and 76 days
respectively
Net cash from operations during the quarter was modest at Rs359m (vs Rs 564m in 4Q11).
While Mumbai headwinds a concern; Buy HDIL on attractive valuations
Proposal by the Maharashtra Government, to amend the way FSI is calculated has led to a
‘wait and watch’ approach by both the developers and the customers affecting Mumbai
property market.
Management has stated that execution of MIAL Phase I is on track and expects the shifting of
families to pick up speed post the monsoons. While the company awaits approval to start off
the Phase II, it still expects to generate about 3-5msf from MIAL Phase I.
Our current SOTP-based target price of Rs225/share is based on an end-FY12F DCF value
of Rs92/sh for MIAL (post 50% execution risk discount), Rs200/sh for non-MIAL projects (post
20% execution risk discount) and Rs31/sh for its new redevelopment projects (1x investment
cost), reduced by Rs98/sh for debt. Buy on attractive valuations.
# Transfer of Development Rights (TDR ) - is a transferable rights in a certificate of built up
area in lieu of the area surrendered or social infrastructure work undergone, so that he can
use extra built up area either himself or transfer it to another for an agreed sum of money.
* Free Sale Index (FSI) - Floor Space Index (FSI) or Floor Area Ratio (FAR) is the ratio of
total floor space to plot size
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