HDIL - Results disappoint; net debt remains sticky - Reduce - Prabhudas Lilladher

Low margin FSI sales result in dismal numbers: HDIL declared results below ours as well as consensus estimates. Revenues declined 9% YoY and 4% QoQ to Rs4.23bn. EBITDA margins declined sharply to 37.2%, a drop of 1550bps QoQ and 2200bps YoY, on account of lower margins in the FSI sales booked during the quarter.

Guruashish FSI sales accounted for 80% of revenues during the quarter as TDR contribution to sales remained subdued. HDIL reported TDR sales of ~0.35 msf @ ~Rs2,570 per sq.ft. in Q3FY12. The bottom-line was aided by a tax write-back of Rs220m on excess provisions of the previous quarters, thus PAT was reported at Rs1.56bn, a decline of 33% YoY, although down 5% QoQ.

- Debtors mounts with no realizations from FSI sales: Although revenues are stable, with the company recognizing revenues from FSI sale transactions, realizations from the same have been dismal for the last couple of quarters. The company's debtors have increased from Rs3.3bn in Q1FY12 to Rs6.08bn in Q3FY12, with an increase of Rs1.6bn witnessed in Q3 itself. At the end of Q3, ~Rs5bn stands due on HDIL's books from FSI sales.

- Management guiding for sharp debt reduction in Q4, improbable in our opinion: Contrary to management guidance of net debt reduction, there has been a sequential increase of Rs930m during the quarter. The company continues to guide for a 15-20% decrease in net debt by the end of FY12 with expected realizations from FSI sales. However, we do not expect strong realizations during the quarter, given the fact that they are linked to commencement approvals being received by the buyer.

Sales momentum extremely weak: On account of weak macro situation, coupled with approval delays, sales momentum at HDIL's existing projects has been extremely weak during the quarter, totaling to
Maintain Reduce: We maintain our negative stance on the company on continuing concerns surrounding receivables realization which is posing difficulty in debt reduction. As per our estimates, the company's NAV stands at Rs147. We are basing our target price at a 45% discount to the NAV. We maintain 'Reduce', with a target price of Rs81.

Source : Equity Bulls

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