HDIL - Rating Under Review - Motilal Oswal

HDIL's (HDIL IN, Mkt Cap US$1.3b, CMP Rs138, Buy) 3QFY11 results are in-line with our expectations. Revenues stood at Rs4.6b up 11.4%YoY EBITDA stood at Rs2.7b an increase of 41%YoY, while EBITDA margins stood at 58.2% (v/s 63.7% in 2QFY11 ) Management has attributed decline in EBITDA margin to increase in construction cost on account of inflation in sand prices. Net profit increased 55%YoY to Rs2.5b (v/s est.Rs2.2b), primarily due to lower than expected tax expense on account of MAT rate on TDR, which is the primary revenue driver.

During 3QFY11, the company has launched phase I and II of its Paradise City project with total saleable area of ~5msf and achieved a sales of ~4msf (over 5,000 units). While Mumbai real estate is witnessing a slowdown in sales, HDIL has till date been relatively less impacted due to its focus on affordable housing. However, in the event the Mumbai slowdown continues, it could impact demand for TDRs from new construction and consequently HDIL, which derives significant part of its revenues from the TDR vertical Net debt of HDIL stood at Rs39.8b, implying a net DER of 0.42x.

Management informed about ~Rs2b of debt repayment during Jan-11 and plans to reduce debt by another 15-20% over next one year, largely to address the adverse liquidity pressure. HDIL also plans to change its accounting policy from Project completion method to Percentage completion method from Apr-11 onward. Further clarity on the subject will be provided in 4QFY11.

Our earlier estimate for HDIL's FY12 NAV was Rs348 and the stock trades at a 60% discount to our FY12 NAV. HDIL trades at 5.5x FY12E EPS of Rs25.4 and 5.2x FY13E EPS of Rs27.1. Our rating on the stock is Under Review.

Source : Equity Bulls

Keywords