HDIL (Outperformer) - Slumlord billionaire! (IDFC) - AIII (Association of Indian Individual Investors) | Google Groups

HDIL (Outperformer) - Slumlord billionaire! (IDFC) - AIII (Association of Indian Individual Investors) | Google Groups *HDIL (CMP: Rs309) *
*Mkt Cap: Rs106.8bn; US$2.3bn Bloomberg code (HDIL IN)*
*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), and will boost operating cash flows. We expect 8msf of TDRs to
be sold p.a. till FY12 (~5msf sold in 9MFY10). HDIL’s guidance on adding
large slum rehab projects in South Mumbai provides incremental upside.
*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.
*Key valuation metrics***
*Year to 31 March*
*FY08*