Housing Development and Infrastructure Ltd (HDIL), a Wadhawan group company, is one of the leading real estate developers whose major footprint is in Mumbai. 82.8% of the company’s total land reserves are located in Mumbai. The company follows a build and sell model with a focus on the middle-income group. It is more into land development, where it builds basic infrastructure and converts land into developable land.
Projects
Till May 31, 2007, out of the total completed projects, 50.7% came from land. In addition, 20.3% of the total projects were completed under slum rehabilitation schemes (SRS). The company has total land bank reserves of approximately 112.1 million sqft. A majority of the proceeds from the issue will be used to complete ongoing and planned projects. Planned projects contribute a majority of the total land reserves.The company has started focusing on residential, commercial, and retail projects. In ongoing projects, residential projects contribute 68.54%, followed by retail projects, 17.05% and slum rehabilitation, 14.11%. The company will complete some of its ongoing projects in the current financial year and the rest will be completed over a period of five years until 2012. Most of the planned projects are expected to go on stream by FY2011-2012.
Financials
The company in FY2003-04 was in a net loss. In FY2005-2006 and FY2006-2007 HDIL saw a jump in the business. In FY2006-07 the turnover and net profit were Rs 1203.45 crore and Rs 541.81 crore respectively as compared to Rs 422.15 crore and Rs 113.92 crore in FY2005-06 respectively.
Net profit margin also increased from 26.99% in FY2005-2006 to 45.02% in FY2006-2007. The rise was due to the sale of one of the slum rehabilitation projects. Margins in such projects are higher as compared to other projects and hence risks are on the higher side as completion may take much more time than expected and can cause erosion in margins.
Valuation
The company has opted for the green shoe option of 44.55 lakh shares and considering this, along with the outstanding shares, the post issue earning per share comes to Rs 25.26. The P/E works out to be 17.02(x) and 19.79 (x) at the lower and higher end of the price band respectively for the financial year ending March 31, 2007. The issue is reasonably priced when compared with peers like Akruti Nirman (31.86), Unitech (43.01) and Parsvanath Developers (23.26).
Real estate prices are experiencing weakness in some pockets of the country. However, HDIL may not feel the heat as most of its projects are in Mumbai where real estate prices are still looking firm. Though over-dependance on Mumbai brings in concentration risk. 70% of its land reserves in Mumbai are earmarked for planned projects where activity is yet to be started. Investors should consider these factors while investing.
