Company earnings for 1QFY13 disappointed on the top and bottom
lines, as PAT at INR 1.05 bn was 40% and 30% lower than our and
the Street’s estimates, respectively. With the Street currently focused
on the company’s cash flow generation rather than P&L, there was
disappointment with operating cash flow generation, due to lower FSI
sales and lower sales across ongoing residential projects. The
management, though, seemed hopeful for improvement in cash flow
visibility, noting significant improvement in the on-ground situation in
Mumbai’s real estate market. In our view, monetisation of its
commercial asset in Andheri (W) along with FSI sales in Virar-Vasai
region remains key to the de-leveraging of the balance sheet and the
performance of the stock. We are reviewing our target price.
Key takeaways from conference call
Management sounded positive on the analysts’ conference call,
seeing improvement in the on-ground situation in Mumbai. They noted
that after a gap of more than one year, the situation around project
approvals has improved and that consequently new launches are likely
to gain momentum. Moreover, there are visible signs of easing
liquidity, reflected in the higher activity in land market, as well as FSI
demand from the developers.
After having recognised almost 90% of revenues on FSI sales in
Andheri & Goregaon by 4QFY12 and with TDR inventory of only 0.1-
0.15mn sq ft left for sale, the company’s revenue in upcoming quarters
should be largely driven by 1) targeted FSI sales in Virar & Vasai
region, and 2) completion of its four under-construction projects –
namely, Premiere, Virar Residency, Virar Industrial Park & Galaxy.
As per the management, with improvement in the on-ground situation
in the real estate market in Mumbai, it 1) is targeting FSI sales of 1-
1.5mn sq ft per quarter from Virar and Vasai region and 2) has plans
for new residential project launches in Pantnagar in (Ghatkopar),
Shahad, and 40 mn sq ft township in Virar, on the outskirts of Mumbai.
The company has mentioned that FSI pricing in the Virar-Vasai region
is in the range of INR 1,200-1,500 psf.
The response towards newly launched Premier Exotica (0.8mn sq ft)
in Kurla has been quite good (having received 500 enquiries till date
and sold ~50 apartments in 3 days), while the response from the 100-
acre plotted/villa project in Noida was lower than management’s
expectations. Given the 1) project’s location; 2) oversupply in Noida
and 3) issues surrounding land acquisitions in the region, we had
expected a lukewarm response towards the project.
Currently, the Mumbai airport slum rehab project remains stuck,
apparently due to lack of political will, and we believe the window for
this project to see progress is another 12 months, post which the
government will go into election mode for the 2014 general and state
elections. Incrementally there is a possibility that the size of the project
may be curtailed and if this does pan out, then HDIL’s proposed TDR
generation and sales may turn out to be much lower than earlier
envisaged, in our view.
The management has reiterated its target of bringing down debt by
20%-25% in FY13F through sale of land/floor space index (FSI) and
internal accruals from under-construction projects and new launches
along with INR6.0bn, which it has yet to receive on FSI sales done in
Goregaon and Andheri in FY11.
With regard to monetisation of its assets, the company is currently
negotiating for the sale of Metropolis (commercial segment) in Andheri
(W) and expects to close this deal by 2Q or 3QFY13F.
Results key highlights – Weaker top line; no improvement in debt
Consolidated total revenue at ~INR2.0bn (-61%y-y; -68%q-q) was
significantly lower than our and Street expectations, owing to FSI sales
in Virar only contributing to the top line. There were no sales recorded
from the Transfer of Development Rights (TDR) or FSI sales in
Andheri or Goregaon during the quarter. The management noted that
FSI sales in Virar & Vasai region and completion of Premiere, Virar
Residency, Virar Industrial Park & Galaxy projects would drive the
revenue in F13F.
EBITDA margin at 79% was higher due to higher-margin FSI sales.
The company’s margin is expected to move down to more normalised
levels once revenue from residential/Industrial park starts getting
recognised, by 3Q or FY13F. The management has guided margin on
these projects to be around 35-50%.
EBITDA at INR 1.7 bn (-45%y-y & -42%q-q) missed our and the
Street’s estimates by a wide margin, owing to a weaker top line.
However, some of this impact was offset by higher margins.
Weak performance at the operating level translated into PATMI at
~INR1.05bn (-44%y-y; -67%q-q), about 40% and 30% lower than our
and the Street’s estimates, respectively.
After a roughly one-year hiatus, HDIL has launched a new residential
project in Mumbai named Premier Exotica (saleable area of ~0.8mn sq
ft). According to management, the initial response towards the project
has been positive. The average realisation achieved at the project is
close to INR 10,000 psf, which we believe is in-line with the current
market price.
On the balance sheet front, consolidated debt has come down slightly,
by INR 0.5bn to INR 38.0bn. The company has been guiding over the
past 5-6 quarters that it will bring down the debt by 20-25%, although
this has more or less remained flat.
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