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HDIL: Land sales taking off; Reiterate BUY
COMPANY QUICK COMMENT
As per an article in the Economic Times on 21Sep, HDIL expects to sell ~5 mn sq ft of land parcels at c.INR 1,300 psf (based on developable area) at Virar in Mumbai. At this price, the sales would result in cumulative cash inflow of INR 6.5bn for HDIL. In the current environment where developers’ balance sheets are stretched, we think price realisation of INR 1,300 psf would be difficult. Based on the current stock price,we think the market is valuing the Virar landbank between INR 250-300 psf. So any price realisation of Virar FSI above INR 300 psf should be positive for the stock. BUY.
As per a news article in the Economic Times dated 21Sep, HDIL is looking to sell ~5 mn sq ft of land parcels at c.INR 1,300 psf (based on developable area) at Virar in Mumbai in the next few weeks. At this price, the sale would result in a cumulative cash inflow of INR 6.5bn for the company. In the current environment where developers’ balance sheets are stretched, we think price realisation of INR 1,300 psf would be difficult to achieve. Based on the current share price, we think the market is valuing the Virar landbank between INR 250-300 psf. So any price realisation of Virar FSI above INR 300 psf should be a positive for the stock. Reiterate BUY.
HDIL: Land sales taking off; Reiterate BUY
As per the Economic Times news article, out of the 5 mn sq ft expected to be sold, local developer Vinay Unique Construction has bought 1 mn sq ft from HDIL at INR 1,250 per sq ft. The company declined to comment. In the 1QFY12 conference call, HDIL had highlighted that it aims to sell 10-15mn sqft in the next 12-18 months in the outskirts of Mumbai including Vasai-Virar, citing good demand for land in this region from other developers.
Based on the current residential selling price of INR 4,000 psf in the Virar and assuming a loading of 30% and pre tax margin of 20%, construction cost of 1,350 psf, we think the implied land cost price (based on developable area) which any developer would be willing to pay will be around INR 1056 psf. In this tough environment where there’s a liquidity freeze and most of the developers’ balance sheets are stretched (especially for private and smaller-sized developers), we think the quantity of sales which the company is targeting and price realisation of INR 1,300 psf (based on developable area) looks aggressive (Please see below exhibit for our calculation). However, given the stock is currently trading well below liquidation value, valuing Virar landbank between INR 250-300 psf. Any sales achieved for Virar FSI above INR 300 psf should be a positive for the company on two grounds. Firstly, the cash received will ease the debt concern around the company and secondly it will provide market a benchmark for the valuation of HDIL’s landbank. We reiterate our BUY on the stock.
Exhibit 1: Implied land cost psf (based on developable area) in Virar
Calculation for implied land cost (INR psf)
Current capital values in Virar (residential selling price: INR psf)
4,000
Pre-tax margin (%)
20%
Construction cost (INR psf)
1350
Interest cost
477
Implied value of land cost (based on saleable area INR psf)
1,373
Implied land cost (INR psf of developable area)- assuming loading of 30%
1,056
Source: Nomura estimates
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
HDIL: Land sales taking off; Reiterate BUY
COMPANY QUICK COMMENT
As per an article in the Economic Times on 21Sep, HDIL expects to sell ~5 mn sq ft of land parcels at c.INR 1,300 psf (based on developable area) at Virar in Mumbai. At this price, the sales would result in cumulative cash inflow of INR 6.5bn for HDIL. In the current environment where developers’ balance sheets are stretched, we think price realisation of INR 1,300 psf would be difficult. Based on the current stock price,we think the market is valuing the Virar landbank between INR 250-300 psf. So any price realisation of Virar FSI above INR 300 psf should be positive for the stock. BUY.
As per a news article in the Economic Times dated 21Sep, HDIL is looking to sell ~5 mn sq ft of land parcels at c.INR 1,300 psf (based on developable area) at Virar in Mumbai in the next few weeks. At this price, the sale would result in a cumulative cash inflow of INR 6.5bn for the company. In the current environment where developers’ balance sheets are stretched, we think price realisation of INR 1,300 psf would be difficult to achieve. Based on the current share price, we think the market is valuing the Virar landbank between INR 250-300 psf. So any price realisation of Virar FSI above INR 300 psf should be a positive for the stock. Reiterate BUY.
HDIL: Land sales taking off; Reiterate BUY
As per the Economic Times news article, out of the 5 mn sq ft expected to be sold, local developer Vinay Unique Construction has bought 1 mn sq ft from HDIL at INR 1,250 per sq ft. The company declined to comment. In the 1QFY12 conference call, HDIL had highlighted that it aims to sell 10-15mn sqft in the next 12-18 months in the outskirts of Mumbai including Vasai-Virar, citing good demand for land in this region from other developers.
Based on the current residential selling price of INR 4,000 psf in the Virar and assuming a loading of 30% and pre tax margin of 20%, construction cost of 1,350 psf, we think the implied land cost price (based on developable area) which any developer would be willing to pay will be around INR 1056 psf. In this tough environment where there’s a liquidity freeze and most of the developers’ balance sheets are stretched (especially for private and smaller-sized developers), we think the quantity of sales which the company is targeting and price realisation of INR 1,300 psf (based on developable area) looks aggressive (Please see below exhibit for our calculation). However, given the stock is currently trading well below liquidation value, valuing Virar landbank between INR 250-300 psf. Any sales achieved for Virar FSI above INR 300 psf should be a positive for the company on two grounds. Firstly, the cash received will ease the debt concern around the company and secondly it will provide market a benchmark for the valuation of HDIL’s landbank. We reiterate our BUY on the stock.
Exhibit 1: Implied land cost psf (based on developable area) in Virar
Calculation for implied land cost (INR psf)
Current capital values in Virar (residential selling price: INR psf)
4,000
Pre-tax margin (%)
20%
Construction cost (INR psf)
1350
Interest cost
477
Implied value of land cost (based on saleable area INR psf)
1,373
Implied land cost (INR psf of developable area)- assuming loading of 30%
1,056
Source: Nomura estimates
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