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MIAL, a Slum Rehabilitation Scheme (SRS) project, continues to face delays. HDIL is shifting its
focus to non-SRS projects, eg, FSI sales and development of residential projects. We keep our
Buy, but reduce our TP to Rs160 (from Rs225) and our forecasts due to approval delays in
Mumbai, where HDIL is a key player.
Focus shifts to non-SRS projects in the near term
HDIL has shifted its focus to non-SRS projects – such as Floor Space Index (FSI) sales and
development of residential projects – due to the delay in the Mumbai International Airport (MIAL)
SRS project, from which HDIL used to generate Transfer of Development Rights (TDR) by
building housing units for slum dwellers. Given the headwinds in the Mumbai real estate market,
TDR sales volumes and prices have declined post 3Q11. This shift of focus to FSI sales has
helped HDIL maintain sales and cash flow momentum. However, given the liquidity crunch,
developers that are buying FSI might stagger payments on their purchases. According to press
reports (The Economic Times, 19th September), HDIL is close to selling FSI in Virar (on the
outskirts of Mumbai) worth Rs3bn, and in Goregaon (in suburban Mumbai) for Rs1.7bn, which
would support sales momentum in the near term, in our opinion.
Revenue recognition from residential projects should begin by late FY12/early FY13
With longer-than-expected approval delays on slum redevelopment projects, we have already
seen HDIL disclose its development pipeline in the residential segment. Policy changes across
product segments in Mumbai are resulting in slowing sales volumes and approval delays in these
projects. However, HDIL, which uses the project completion methodology for revenue recognition,
is likely to start recognising revenues because few of HDIL’s projects (launched in 2009) are
nearing completion. That said, we anticipate pressure on cash flows because recognising profits
on sold projects would result in tax outgo.
We factor sector headwinds into our model and cut TP by 29%; Buy on valuation
We maintain our Buy rating, but cut our forecasts and TP due to approval delays in Mumbai,
where HDIL is a key player (as 60% and 87% of its Gross Asset Value is from Mumbai and
Mumbai Metropolitan Region (MMR) respectively). We cut our FY12F and FY13F earnings by
12% and 10%, respectively. We roll forward our valuations to FY13F and fine tune our SOTPbased
TP to Rs160 – derived from Rs47/share for MIAL (post 70% execution risk discount),
Rs176/share for non-MIAL projects (post 25% execution risk discount) and Rs31/share for its new
redevelopment projects (1x investment cost), reduced by Rs94/share for debt. Buy on attractive
valuation.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
MIAL, a Slum Rehabilitation Scheme (SRS) project, continues to face delays. HDIL is shifting its
focus to non-SRS projects, eg, FSI sales and development of residential projects. We keep our
Buy, but reduce our TP to Rs160 (from Rs225) and our forecasts due to approval delays in
Mumbai, where HDIL is a key player.
Focus shifts to non-SRS projects in the near term
HDIL has shifted its focus to non-SRS projects – such as Floor Space Index (FSI) sales and
development of residential projects – due to the delay in the Mumbai International Airport (MIAL)
SRS project, from which HDIL used to generate Transfer of Development Rights (TDR) by
building housing units for slum dwellers. Given the headwinds in the Mumbai real estate market,
TDR sales volumes and prices have declined post 3Q11. This shift of focus to FSI sales has
helped HDIL maintain sales and cash flow momentum. However, given the liquidity crunch,
developers that are buying FSI might stagger payments on their purchases. According to press
reports (The Economic Times, 19th September), HDIL is close to selling FSI in Virar (on the
outskirts of Mumbai) worth Rs3bn, and in Goregaon (in suburban Mumbai) for Rs1.7bn, which
would support sales momentum in the near term, in our opinion.
Revenue recognition from residential projects should begin by late FY12/early FY13
With longer-than-expected approval delays on slum redevelopment projects, we have already
seen HDIL disclose its development pipeline in the residential segment. Policy changes across
product segments in Mumbai are resulting in slowing sales volumes and approval delays in these
projects. However, HDIL, which uses the project completion methodology for revenue recognition,
is likely to start recognising revenues because few of HDIL’s projects (launched in 2009) are
nearing completion. That said, we anticipate pressure on cash flows because recognising profits
on sold projects would result in tax outgo.
We factor sector headwinds into our model and cut TP by 29%; Buy on valuation
We maintain our Buy rating, but cut our forecasts and TP due to approval delays in Mumbai,
where HDIL is a key player (as 60% and 87% of its Gross Asset Value is from Mumbai and
Mumbai Metropolitan Region (MMR) respectively). We cut our FY12F and FY13F earnings by
12% and 10%, respectively. We roll forward our valuations to FY13F and fine tune our SOTPbased
TP to Rs160 – derived from Rs47/share for MIAL (post 70% execution risk discount),
Rs176/share for non-MIAL projects (post 25% execution risk discount) and Rs31/share for its new
redevelopment projects (1x investment cost), reduced by Rs94/share for debt. Buy on attractive
valuation.
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