Friday, May 29, 2009



Housing Development & Infrastructure’s (HDIL) Q4FY09 results were dismal, with revenues and PAT dipping 63% YoY and 91% YoY to Rs3.6bn and Rs619mn respectively. PAT was in line with our estimates, but EBITDA margin dropped sharply to 27%, the lowest in the past eight quarters. During March-April ’09, HDIL launched 2mnsqft of residential projects (75% booked). The company is mulling 3-4mnsqft residential launches in Mumbai in the next three months. The Mumbai slum rehabilitation scheme (SRS) is progressing well. The Board has approved raising up to US$600mn and allocating warrants to the promoters. We believe cashflow infusion would reduce the strain on balance sheet, bringing down the gross D/E from 0.9x to <0.5x> airport SRS and provide capital for new launches. We upgrade HDIL to BUY from Hold with Rs355/share target price (on 20% discount to one-year forward NAV of Rs443/share). HDIL is trading at FY10E & FY11E P/E of 15x & 12x respectively with FY10E P/BV of 1.7x.

Revenue & margin contraction. HDIL’s Q4FY09 revenues dipped 63% YoY (up 14% QoQ) to Rs3.6bn – Rs1.3bn was booked from sale of 1mnsqft TDRs and Rs1bn from FSI sale in Malad slum rehabilitation project; income from booking of Grande and land sales contributed the rest. EBITDA margin dropped to 27% versus 45% in FY09 due to lower TDR price and higher operating expenses on a reducing topline.

Strong demand in recent project launches. HDIL launched 2mnsqft of residential projects during March-April ’09 at ~30-20% discount to the market price, generating >75% bookings. The company is mulling launches of 3-4mnsqft residential projects in Mumbai in the next three months. Volumes have picked up in the TDR market, with HDIL selling 1mnsqft in Q4FY09 versus 0.3mnsqft in Q3FY09. As per the management, TDR prices have picked to Rs1,400-1,500/sqft (35% rise from the bottom). However, we have factored in Rs1,250/sqft TDR price for FY10E.

Capital infusion to help ease debt burden. HDIL is planning to raise capital through equity dilution and warrants. As per the management, the capital raised will primarily help reduce debt; future growth would be funded only via internal accruals. This will be positive for HDIL and reduction of gross D/E from 0.9x to <0.5x> balance sheet strain and bring down the rising interest burden. It will also reduce funding concerns in Mumbai airport SRS, a key long-term value driver. HDIL intends to focus on projects which have immediate cash inflow visibility; long-duration projects such as special economic zones are on hold till conditions improve.

To see full report: HDIL