Upgrade HDIL to ‘overweight’ from ‘neutral’ with a March 2016 target of R140, implying 8x cash ebitda and inline with multiple used for other residential property developers. The company has over the last 1 year staged a remarkable comeback. Valuations at 0.4x PB, 53% RNAV discount are cheap in the context of solvency risk getting removed and improving fundamentals of Mumbai residential. HDIL’s Q3 EPS R1.6 (up 126% y-o-y) was ahead of expectations on recognition of commercial sales in Kurla. Debt has gone down by 14% FY14 year-to-date and pre-sales are up 76% YTD. Improvement hence is seen on all metrics. Company expects to cut down debt by an additional R200-300 crore by March and reduce it to under R2,500 crore.
Affordable housing can be a game changer for the fundamentals of the business. HDIL’s mid income township in Virar (75 million square feet-plus, all approvals in place) is likely to be the single biggest integrated affordable housing project in the city. Mid income housing is one of the key priority areas of the city. The project is expected to be launched in Q4 and will be executed over a phased manner. Ticket prices here at less than R50 crore are likely to be one of the lowest in the city.
HDIL has close to 11 million square feet of ongoing projects in Mumbai city right now. These projects on our calculations embed close to R5,000 crore in pre-tax free cash flows.
By JPMorgan
