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HDIL: Mega plans on the anvil

Nov 15, 2007

Performance summary
  • 2QFY08 topline grows 5% QoQ (it being the first quarterly result port listing, the YoY figures are not available).
  • 46% revenues were from residential segment and 54% from land development.

  • Operating margins expand by 2% QoQ to touch 55%.

  • PAT grows by 13% QoQ mainly due to higher other income.

(Rs m) 1QFY08 2QFY08 Change
Sales 4,433 4,649 4.9%
Expenditure 2,069 2,088 0.9%
Operating profit (EBDITA) 2,364 2,561 8.4%
Operating profit margin (%) 53.3% 55.1%  
Other income 26 168 556.6%
Interest 98 162 66.2%
Depreciation 2 2 6.0%
Profit before tax 2,289 2,565 12.0%
Tax 262 271 3.3%
Profit after tax/(loss) 2,027 2,294 13.2%
Net profit margin (%) 45.7% 49.3%  
No. of shares (m)   206.6  
Diluted earnings per share (Rs) *   41.8  
P/E ratio (x) *   17.0  

What is the company’s business?
Founded in 1962, Housing Development and Infrastructure Ltd. (HDIL) is a leading real estate development company with significant operations in the Mumbai Metropolitan Region (MMR). The company is part of the Wadhwa Group, which has around 30 years of experience in the Mumbai real estate market and has around 73.2 msqft (including HDIL) of completed projects to its credit. Since its incorporation in 1996, HDIL has developed 24 projects covering approximately 11.3 million square feet (msqft) of saleable area, including approximately 5.7 msqft of land sold to other builders after land development. It has also constructed an additional 2.0 msqft of rehabilitation housing area under slum rehabilitation schemes (SRS). HDIL has a land reserve equivalent of 125 msqft of saleable area, of which approximately 45.5 msqft of saleable area is under construction/development.

What has driven performance in 2QFY08?
Growth in residential and land development drives topline: HDIL recorded a topline growth of 5% QoQ during 2QFY08. The sale of residential flats contributed to 46% of the total topline while the remaining was contributed by land development. At the end of September 2007, the company was working on 21 projects aggregating to 45.5 msqft. Since the company is heavily concentrated in MMR - 68% of the 45.5 m sq. ft is in this region. HDIL has a total land bank of 125 m sq. ft.

Breakup of turnover
  Rs m % share
(A) Residential (Dreams, Bhandup) 2,128 45.8%
(B) Land development    
Bandra East SRS Scheme 1 780  
Vasai Virar 631  
Goregaon 1,110  
Sub total 2,521 54.2%
Total 4,649 100.0%

Lower costs aid margin expansion: HDIL’s operating margins expanded by 2% QoQ during 2QFY08. This was mainly due to rise in stock in trade and WIP. Since the company follows a completed contract method, a rise in closing stock and WIP is reduced from operating expenses and when the sale in finished it is booked as revenue.

Higher other income aids bottomline: HDIL recorded a strong 13% QoQ growth in bottomline during 2QFY08. This was mainly due to higher other income, which grew by 557% QoQ.

What to expect?
At the current price of 710, the stock is trading at a multiple of 17 times its 1HFY08 annualised earnings. The company has recently won the Airport slum rehabilitation project from Mumbai International Airport Ltd (MIAL) for removal of slums from airport land. As per the agreement, HDIL will have to rehabilitate some 85,000 families living in the slums around the international airport. This is turn will result in generation of minimum 30 to 40 msqft of TDR (Transferable Development Rights) and FSI (Floor Space Index). As per the company, it has already rehabilitated about 25,000 families out of the said 85,000. The key risk in these projects is the long gestation period as the entire slum rehabilitation program (SRS) could take minimum 12 years to 15 years. But nevertheless, the project, if successful, also ensures a steady stream of cash flows to the company.

Secondly, the company also incorporated HDIL Entertainment in July 07 as its 100% subsidiary to get a foothold in the entertainment industry. As its first venture, HDIL will develop and operate multiplex with 13 screens at Kandivali, Vasai and Bhandup. The company is all set to launch its first multiplex in Vasai in 3QFY08 with 3 screens and 1,000 seats capacity and the Kandivali multiplex will be operational by the end of this fiscal with 4 screens and 900 seats. The company’s main target in the coming months will be to bag the Dharavi rehabilitation program. If awarded, it will have to clear over 550 acres of land and will have to rehabilitate more than 70,000 families living across Dharavi.

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