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UBS Investment Research
HDIL
O perationally in-line; FSI sales the trigger
Event: Q1 in-line with UBSe; but operationally a muted quarter
Q1 revenues grew 12% YoY to Rs 5.2bn inline with UBSe. EBITDA margins were
ahead of our expectations at 57% (vs. UBSe 48%) driven largely by higher FSI
sales (Rs3.3bn). Net Income however declined 12% YoY to Rs1.9bn due to higher
interest expense. Q1 TDR sales was muted - 0.65msf @ Rs2,500/sf. Consolidated
net debt reduced marginally to Rs40.3bn (vs. Rs40.9bn in Q4) with D/E at 0.41x
Impact: Maintain estimates on FSI sale visibility and project completion
We maintain our FY12-14E estimates driven by 1) visibility on more FSI sales
recognition (Rs7-10bn), and 2) revenue recognition on project completion of key
residential projects (Premier, Galaxy, Metropolis) & Palghar industrial park in
H2FY12. We forecast earnings to grow at a 24% CAGR through FY14E.
Action: Maintain Buy; Good FSI pre-sales & debt reduction key catalysts
Drivers being - 1) Focus on FSI monetization in greater Mumbai (Vasai, Virar) for
15-20msf in next 15-18mths; 2) Good pre-sales to new launches of 6-7 msf over
next 9-mts, 3) steps to reduce leverage by 20% in FY12. Key risks: 1) delays/low
visibility on MIAL (airport rehab) project 2) Uncertainty over TDR
policy/absorption; and 3) weak Mumbai market and any non-core investment.
Valuation: Favourable risk-reward at deep discount to NAV
With valuations at a 65% discount to our base-case NAV of Rs335, and 0.3x P/BV
in FY11E - we foresee attractive risk-reward at current levels. Our Rs 218 PT is
based on a 35% discount to NAV.
Operational Highlights
TDR sales of 0.65msf @ Rs 2,500 psf relatively muted (vs. 4Q of 0.9msf @
Rs 2,600 psf). Mgmt expects to maintain 0.8-1msf per quarter in FY12. TDR
inventory of 0.5msf at Q1.
Pre-sales was muted with 72% of launches since Q409 sold (14.5msf
launched) vs. 77% in Q4 (13.7msf launched). Cumulative pre-sales estimated
cashflows grew from Rs44.9bn to Rs46.3bn in Q1. Q1 launch of Whispering
Meadows Ph II sold 10% of project generating potential Rs 604mn.
FSI sales continue to be a focus area; Plan to aggressively monetize its land
reserves in Greater Mumbai and Non-Mumbai land reserves (Vasai Virar,
Shahad, Panwel). Company targets generating Rs7-10bn in FSI sales in
FY12. We expect TDR sales to remain muted in near-term, with some
recovery in Q3 once FSI policy clarity emerges.
Ongoing delays/low visibility on MIAL (airport rehab) project due to 1)
issues eligibility criteria of slum families for rehabilitation; and 2) pending
govt. approval for land allocation for Phase-III – these remain an overhang
on cash flows and seems unlikely to change in near-term (as highlighted by
mgmt).
Consolidated Debt remained relatively flat at Rs 40.3 bn. Net D/E was 0.41x.
HDIL targets reducing debt by 15-20% in FY12.
No new land acquired in Q1. Further, HDIL does not intend to acquire any
further land in FY12 which we believe is positive.
HDIL expects revenue recognition from completion of 3 residential (Premier,
Galaxy & Metropolis) & industrial park expected to be completed in 2H12.
Valuations attractive
Our PT of Rs 218/share is based on a 35% discount to our NAV estimate of
Rs335. With discount at peak levels (as seen during credit crisis period) and
stock at 30% disc to our Bearcase NAV of Rs233, we find valuations attractive.
Our discount is due to: 1) HDIL’s high risk-reward business model amidst
current volatility; 2) increased concerns on adverse policy measures that could
impact Mumbai market, like higher FSI policy affecting TDR absorption//prices;
3) likely delays in airport rehabilitation projects; and 4) reduced risk appetite.
Our NAV, however, largely factors in 1) TDR prices of Rs2,600-3,000/sf; 2) no
premium for the value of land reserves, 3) commercial saleable area of 8.5msf
after airport slum rehabilitation, albeit with 2-year delays; 4) customer advances
of Rs11.5bn following residential presales; and 5) a 1-2 year push back in
execution time-lines for large townships in Vasai-Virar, Hyderabad, Kochi.
Bull-case and bear-case NAV
We expect NAVs to remain volatile during recovery cycles, and thus highlight
the bull-case and bear-case scenario for HDIL’s NAV. The bear case: 1) factors
in five-year development visibility (30msf, 63% of NAV); 2) values the balance
as undeveloped land reserves (37% of NAV); 3) TDR prices at Rs2,000-2,200/sf
and one to two years of delay in absorption. Our bull case builds in 1) 10%
higher prices/rentals; 2) a faster execution cycle for airport rehabilitation and
other township projects; 3) TDR prices at Rs3,000-3,200/sf. We believe this
provides a good perspective on downside risks and upside potential to NAVs.
Key downside risks
The key downside risks for HDIL are 1) A sharp decline in TDR sales with
stagnant realisations, and a likely increase in FSI going forward; 2) difficulty in
land aggregation for Phase-III of the airport project amidst rising land prices;
and 3) increasing competition in the slum rehabilitation business could strain
new project wins going forward.
Housing Development & Infrastructure
Housing Development and Infrastructure Limited (HDIL) is one of the largest
slum redevelopers in Mumbai. HDIL's business includes real estate development
and slum rehabilitation and development, which includes clearing slum land and
re-housing slum dwellers. HDIL has a portfolio of 196msf of developable land,
of which 61msf relates to the Slum Rehabilitation Authority (SRA) and 170msf
is in Mumbai. It has a strong track record in slum rehabilitation projects and was
awarded the Mumbai International Airport Slum Rehabilitation contract in
October 2007, one of the largest slum clearances to date in India.
Statement of Risk
Key risks to HDIL include exposure to Mumbai, change in regulatory
environment, policy and political risks and rising interest rates
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
HDIL
O perationally in-line; FSI sales the trigger
Event: Q1 in-line with UBSe; but operationally a muted quarter
Q1 revenues grew 12% YoY to Rs 5.2bn inline with UBSe. EBITDA margins were
ahead of our expectations at 57% (vs. UBSe 48%) driven largely by higher FSI
sales (Rs3.3bn). Net Income however declined 12% YoY to Rs1.9bn due to higher
interest expense. Q1 TDR sales was muted - 0.65msf @ Rs2,500/sf. Consolidated
net debt reduced marginally to Rs40.3bn (vs. Rs40.9bn in Q4) with D/E at 0.41x
Impact: Maintain estimates on FSI sale visibility and project completion
We maintain our FY12-14E estimates driven by 1) visibility on more FSI sales
recognition (Rs7-10bn), and 2) revenue recognition on project completion of key
residential projects (Premier, Galaxy, Metropolis) & Palghar industrial park in
H2FY12. We forecast earnings to grow at a 24% CAGR through FY14E.
Action: Maintain Buy; Good FSI pre-sales & debt reduction key catalysts
Drivers being - 1) Focus on FSI monetization in greater Mumbai (Vasai, Virar) for
15-20msf in next 15-18mths; 2) Good pre-sales to new launches of 6-7 msf over
next 9-mts, 3) steps to reduce leverage by 20% in FY12. Key risks: 1) delays/low
visibility on MIAL (airport rehab) project 2) Uncertainty over TDR
policy/absorption; and 3) weak Mumbai market and any non-core investment.
Valuation: Favourable risk-reward at deep discount to NAV
With valuations at a 65% discount to our base-case NAV of Rs335, and 0.3x P/BV
in FY11E - we foresee attractive risk-reward at current levels. Our Rs 218 PT is
based on a 35% discount to NAV.
Operational Highlights
TDR sales of 0.65msf @ Rs 2,500 psf relatively muted (vs. 4Q of 0.9msf @
Rs 2,600 psf). Mgmt expects to maintain 0.8-1msf per quarter in FY12. TDR
inventory of 0.5msf at Q1.
Pre-sales was muted with 72% of launches since Q409 sold (14.5msf
launched) vs. 77% in Q4 (13.7msf launched). Cumulative pre-sales estimated
cashflows grew from Rs44.9bn to Rs46.3bn in Q1. Q1 launch of Whispering
Meadows Ph II sold 10% of project generating potential Rs 604mn.
FSI sales continue to be a focus area; Plan to aggressively monetize its land
reserves in Greater Mumbai and Non-Mumbai land reserves (Vasai Virar,
Shahad, Panwel). Company targets generating Rs7-10bn in FSI sales in
FY12. We expect TDR sales to remain muted in near-term, with some
recovery in Q3 once FSI policy clarity emerges.
Ongoing delays/low visibility on MIAL (airport rehab) project due to 1)
issues eligibility criteria of slum families for rehabilitation; and 2) pending
govt. approval for land allocation for Phase-III – these remain an overhang
on cash flows and seems unlikely to change in near-term (as highlighted by
mgmt).
Consolidated Debt remained relatively flat at Rs 40.3 bn. Net D/E was 0.41x.
HDIL targets reducing debt by 15-20% in FY12.
No new land acquired in Q1. Further, HDIL does not intend to acquire any
further land in FY12 which we believe is positive.
HDIL expects revenue recognition from completion of 3 residential (Premier,
Galaxy & Metropolis) & industrial park expected to be completed in 2H12.
Valuations attractive
Our PT of Rs 218/share is based on a 35% discount to our NAV estimate of
Rs335. With discount at peak levels (as seen during credit crisis period) and
stock at 30% disc to our Bearcase NAV of Rs233, we find valuations attractive.
Our discount is due to: 1) HDIL’s high risk-reward business model amidst
current volatility; 2) increased concerns on adverse policy measures that could
impact Mumbai market, like higher FSI policy affecting TDR absorption//prices;
3) likely delays in airport rehabilitation projects; and 4) reduced risk appetite.
Our NAV, however, largely factors in 1) TDR prices of Rs2,600-3,000/sf; 2) no
premium for the value of land reserves, 3) commercial saleable area of 8.5msf
after airport slum rehabilitation, albeit with 2-year delays; 4) customer advances
of Rs11.5bn following residential presales; and 5) a 1-2 year push back in
execution time-lines for large townships in Vasai-Virar, Hyderabad, Kochi.
Bull-case and bear-case NAV
We expect NAVs to remain volatile during recovery cycles, and thus highlight
the bull-case and bear-case scenario for HDIL’s NAV. The bear case: 1) factors
in five-year development visibility (30msf, 63% of NAV); 2) values the balance
as undeveloped land reserves (37% of NAV); 3) TDR prices at Rs2,000-2,200/sf
and one to two years of delay in absorption. Our bull case builds in 1) 10%
higher prices/rentals; 2) a faster execution cycle for airport rehabilitation and
other township projects; 3) TDR prices at Rs3,000-3,200/sf. We believe this
provides a good perspective on downside risks and upside potential to NAVs.
Key downside risks
The key downside risks for HDIL are 1) A sharp decline in TDR sales with
stagnant realisations, and a likely increase in FSI going forward; 2) difficulty in
land aggregation for Phase-III of the airport project amidst rising land prices;
and 3) increasing competition in the slum rehabilitation business could strain
new project wins going forward.
Housing Development & Infrastructure
Housing Development and Infrastructure Limited (HDIL) is one of the largest
slum redevelopers in Mumbai. HDIL's business includes real estate development
and slum rehabilitation and development, which includes clearing slum land and
re-housing slum dwellers. HDIL has a portfolio of 196msf of developable land,
of which 61msf relates to the Slum Rehabilitation Authority (SRA) and 170msf
is in Mumbai. It has a strong track record in slum rehabilitation projects and was
awarded the Mumbai International Airport Slum Rehabilitation contract in
October 2007, one of the largest slum clearances to date in India.
Statement of Risk
Key risks to HDIL include exposure to Mumbai, change in regulatory
environment, policy and political risks and rising interest rates
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