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Subdued TDR Sales; Free Cash Flow Remains Positive
HDIL’s 2QFY12 profits were below our and consensus expectations by 29.7%
and 19.2% respectively on account of lower TDR (transfer of development rights)
volume, as it reported 0.27mn sq ft of TDR sales against our estimate of 0.50mn
sq ft. Delay in government approvals and a challenging macro environment hurt
new project launch/contracted sales and thereby TDR sales. We lower our
FY12E and FY13E profit estimates by 16.2% and 15.5%, respectively, to factor in
lower TDR sales and the delay in revenue booking from existing projects.
However, we believe the concerns are well factored in and the 46% correction in
stock price over the past four months versus 8% in the Sensex provides a good
buying opportunity, with the stock trading at 0.3x P/BV. We maintain our Buy
rating on the stock with a revised TP of Rs113 (Rs142 earlier).
Lower TDR sales dent profitability: HDIL reported revenue growth of 15.4% YoY
(down 13.9% QoQ), largely driven by FSI sales (Rs2.9bn) from its Guru Ashish
(Goregaon) project. The TDR market remained weak following the slowdown in new
project launch in Mumbai due to delay in approvals, resulting in a 57% QoQ decline in
TDR revenue (Rs700mn). HDIL sold 0.27mn sq ft of TDRs at Rs2,545/sq ft in 2QFY12
as against 0.65mn sq ft at Rs2,500/sq ft in 1QFY12. EBITDA margin was largely in line
with our expectation. The 1,543bps YoY drop in OPM is on account of the product mix
skewed towards FSI sales. Tax rate was 26.1% in 2QFY12 versus 15.3% in 2QFY11
because of higher tax paid on FSI sales, which attracted full tax rate as against MAT
rate for TDR sales. Hence, PAT declined 24.4% YoY to Rs1,486mn against our
estimate of Rs2,114mn and consensus estimate of Rs1,839mn.
Balance Sheet remains strong: HDIL’s net D/E ratio fell from 0.43x in FY11 to 0.40x
in 2QFY12, thanks to FSI sales. We expect net D/E ratio to go down further to 0.31x in
FY13E as HDIL mops up remaining Rs9bn of cash via FSI sales at Goregaon and
Andheri projects by March 2012, ongoing FSI sales at Vasai/Virar and sales generated
from new launches. Over the past three quarters, HDIL turned operating cash flow
positive and generated Rs4,198mn free operating cash flow in 1HFY12 as against Rs
22bn of negative free cash flow generated over FY09-11.
Outlook: We expect regulatory issues to get resolved in Mumbai when the
Maharashtra government comes out with its definitive FSI policy that will expedite the
approval process and thereby improve new launches. We expect HDIL’s competitive
pricing strategy to attract demand and thereby improve contracted sales. At the CMP,
HDIL trades at 3.5x P/E, 0.3x P/BV and at 43% discount to our one-year forward NAV.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Subdued TDR Sales; Free Cash Flow Remains Positive
HDIL’s 2QFY12 profits were below our and consensus expectations by 29.7%
and 19.2% respectively on account of lower TDR (transfer of development rights)
volume, as it reported 0.27mn sq ft of TDR sales against our estimate of 0.50mn
sq ft. Delay in government approvals and a challenging macro environment hurt
new project launch/contracted sales and thereby TDR sales. We lower our
FY12E and FY13E profit estimates by 16.2% and 15.5%, respectively, to factor in
lower TDR sales and the delay in revenue booking from existing projects.
However, we believe the concerns are well factored in and the 46% correction in
stock price over the past four months versus 8% in the Sensex provides a good
buying opportunity, with the stock trading at 0.3x P/BV. We maintain our Buy
rating on the stock with a revised TP of Rs113 (Rs142 earlier).
Lower TDR sales dent profitability: HDIL reported revenue growth of 15.4% YoY
(down 13.9% QoQ), largely driven by FSI sales (Rs2.9bn) from its Guru Ashish
(Goregaon) project. The TDR market remained weak following the slowdown in new
project launch in Mumbai due to delay in approvals, resulting in a 57% QoQ decline in
TDR revenue (Rs700mn). HDIL sold 0.27mn sq ft of TDRs at Rs2,545/sq ft in 2QFY12
as against 0.65mn sq ft at Rs2,500/sq ft in 1QFY12. EBITDA margin was largely in line
with our expectation. The 1,543bps YoY drop in OPM is on account of the product mix
skewed towards FSI sales. Tax rate was 26.1% in 2QFY12 versus 15.3% in 2QFY11
because of higher tax paid on FSI sales, which attracted full tax rate as against MAT
rate for TDR sales. Hence, PAT declined 24.4% YoY to Rs1,486mn against our
estimate of Rs2,114mn and consensus estimate of Rs1,839mn.
Balance Sheet remains strong: HDIL’s net D/E ratio fell from 0.43x in FY11 to 0.40x
in 2QFY12, thanks to FSI sales. We expect net D/E ratio to go down further to 0.31x in
FY13E as HDIL mops up remaining Rs9bn of cash via FSI sales at Goregaon and
Andheri projects by March 2012, ongoing FSI sales at Vasai/Virar and sales generated
from new launches. Over the past three quarters, HDIL turned operating cash flow
positive and generated Rs4,198mn free operating cash flow in 1HFY12 as against Rs
22bn of negative free cash flow generated over FY09-11.
Outlook: We expect regulatory issues to get resolved in Mumbai when the
Maharashtra government comes out with its definitive FSI policy that will expedite the
approval process and thereby improve new launches. We expect HDIL’s competitive
pricing strategy to attract demand and thereby improve contracted sales. At the CMP,
HDIL trades at 3.5x P/E, 0.3x P/BV and at 43% discount to our one-year forward NAV.
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