Mkt Cap: Rs106.8bn; US$
Housing Development and Infrastructure (HDIL), the largest slum redeveloper in Mumbai Metropolitan Region, is undergoing an image makeover. The tremendous response to its affordable housing launches in Mumbai is a key step towards HDIL's transition into an integrated real estate developer. HDIL has set a target of launching ~6msf of residential and commercial projects every year from FY11 (~7.8msf launched in FY10). In the core business, the Mumbai Airport (MIAL) slum rehabilitation project is on schedule while TDR prices too are looking up. With healthy cash flows and stronger balance sheet post the fund raising and debt refinancing, we see HDIL well placed to capitalize on the improving demand scenario. Resultant, we expect ~22% CAGR in revenues and ~28% CAGR in earnings over FY09-12. Initiating coverage with Outperformer and a 12-month price target of Rs370 per share.
Shift in strategy towards an integrated developer…: HDIL has successfully launched ~3.3msf of residential projects and pre-sold ~2.1msf till date. It has set an aggressive target of ~6msf launches each in FY11/ 12. Recent allotment of rental housing project in Virar (potential to generate ~50msf of saleable area) is another step towards becoming a truly diversified player; although immediate need to buy additional land for MIAL project and start construction on Virar project could strain cash flows, thereby necessitating capital raising.
…with due focus on slum rehab; higher TDR prices add to prospects: MIAL project, India's largest slum rehabilitation venture (53% of HDIL's Gross NAV; ~53msf of TDR & FSI), is largely on schedule. Also, TDR prices have firmed up led by resurgence in residential demand (latest sale by HDIL at ~Rs2,500psf)
Balance sheet concerns allayed; the stock offers material upside: The capital raising/refinancing of debt has helped HDIL pare its net gearing to 0.4x (0.9x as of FY09). In view of the 28% earnings CAGR over FY09-12E, the business offers value creation potential. Key risks include execution/rehab delay in MIAL, changes in TDR policies and over-dependence on Mumbai market. Our price target of Rs370 (20% discount to our FY11E NAV of Rs462) offers 20% upside from CMP.
| Year to 31 March | FY08 | FY09 | FY10E | FY11E | FY12E |
|
| Net sales (Rs m) | 23,805 | 17,294 | 14,570 | 22,480 | 31,580 |
|
| Adj. net profit (Rs m) | 14,103 | 6,775 | 5,791 | 8,779 | 14,145 |
|
| Shares in issue (m) | 214 | 275 | 357 | 372 | 372 |
|
| Adj. EPS (Rs) | 65.8 | 24.6 | 16.2 | 23.6 | 38.0 |
|
| % change | 116.2 | (62.6) | (34.0) | 45.4 | 61.1 |
|
| PE (x) | 4.7 | 12.6 | 19.0 | 13.1 | 8.1 |
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| Price/ Book (x) | 1.8 | 1.9 | 1.6 | 1.4 | 1.2 |
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| EV/ EBITDA (x) | 6.0 | 16.1 | 20.4 | 11.4 | 5.8 |
|
| RoE (%) | 64.8 | 16.8 | 10.2 | 11.6 | 15.9 |
|
| RoCE (%) | 39.2 | 10.1 | 7.3 | 10.6 | 17.5 |
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IDFC - SSKI Research
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Management lies in dropping the last alphabet: manage – men. still better, drop one more alphabet: manage – me.
Samir Kumar Shah.
9830405060
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