Housing Development and Infrastructure Ltd. (HDIL) -Traction on approvals should aid collections :: JPMorgan

Our Overweight thesis on HDIL has been predicated on two primary
assumptions i.e. 1. Approvals scenario in Mumbai should improve over FY13,
which then should aid collections from presold FSI and help new launches and
2. Expectations of visible action on the airport project by the government by
end of the year and ahead of 2014 elections. Over the last week, approval
deadlock finally seems to have broken with about 78 buildings getting
approvals after a gap of more than a year. Whilst airport resettlement
continues to be a contentious issue, in the current week a rather high profile
meeting of the Chief Minister/Airport Ministry seems to suggest that a
resolution could come by the end of the year. At CMP of Rs73, we think
HDIL's stock price not only writes down airport project to zero but also
implies significant write down on its rather cheap cost Mumbai land bank. We
think the risk reward remains favorable. Maintain our Mar13 PT of Rs200.

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 Building approvals start to come through- Over the last one week, 78
buildings (of which 38 were new proposals) were cleared by government
authorities after a gap of almost 1.5 years. This early signs of revival in
approvals, in our view, also sets the stage for some price correction by
developers who are starved for cash flow. This should however help HDIL
by a) aiding cash collections from pre sold FSI to developers who can then
in turn launch their projects and B) Also aid cash flows from pre sold
projects which are stuck and help new launches/ land sales.
 Policy action on Airport project?- This week a high profile committee
comprising the Chief Minister and Aviation Minister met to review the
airport project (source: TOI). The government seems to have constituted a
task force to implement the project but unfortunately no “timeline” has been
divulged. With close to 18K tenements getting ready, we think an action
could likely come ahead of 2014 elections. Also given land acquisition
delays around the second Navi Mumbai airport, resolving current airport
will be important for the state government.
 Valuations at 0.3x P/B are discounting significant negatives, in our view.
At current price, the stock is not only writing down the airport project to
zero but is also imputing significant discount to physical market valuations
for its Mumbai city centric projects and mid income land holdings in distant
suburbs, which is unwarranted in our view.