Sell HDIL; target of Rs 62: Nirmal Bang

Nirmal Bang is bearish on HDIL and has recommended sell rating on the stock with a target price of Rs 62, in its August 16, 2012 research report.

“HDIL’s 1QFY13 profits were below our/Bloomberg consensus estimates by 23%/30%, respectively, as the company did not sell any FSI (Floor space Index) from its Guru Ashish project (Goregaon). Cash collection of ~Rs2bn during the quarter continued to remain weak, which remains a concern. Further, it converted its commercial project at Kurla, Mumbai, into a residential one, thereby leading to generation of 2mn sq ft of TDR (Transfer Developmental Rights) not factored in our estimates earlier. Consequently, this will lead to Rs5bn of revenues which will negate likely minimal sale from FSI of Guru Ashish project, thereby keeping our FY13E estimates unchanged. Though HDIL managed to launch 0.8mn sq ft (in August 2012) in Mumbai after four quarters, we believe concerns over weak demand in Mumbai property market still persist, thereby impacting the launch of new projects. This will increase the reliance on FSI sale in the current tight liquidity environment where cash conversion takes much longer. HDIL reported revenue of Rs2.0bn (down 67.8% QoQ), much below our estimate (Rs4.8bn) and consensus expectation (Rs5.1bn). For the quarter, HDIL posted nil revenue from TDR sales, as expected, due to minimal inventory and nil FSI sales from Guru Ashish project. HDIL’s revenues were driven by FSI sales from Vasai/Virar projects. The management indicated FSI sales in Vasai/Virar projects were transacted at Rs1,200/sq ft. Hence, it reported strong EBITDA margin of 78%, much higher than our expectation. PAT stood at Rs1,054mn, below our estimate (Rs1,369mn) and consensus estimate (Rs1,508mn). HDIL has converted its 2mn sq ft of ongoing commercial office/retail complex Kurla Premier into: 1) Commercial and retail space of 0.4 mn sq ft, 2) Residential space of 0.8mn sq ft, and 3) TDR of 2mn sq ft to be sold in FY13. On the other hand, the management has guided minimal FSI sale from its Guru Ashish project in FY13E as against our earlier expectation of Rs5bn. However, we are now factoring 2mn sq ft of TDR sales in FY13E at Rs2,500/ sq ft, thereby keeping our FY13E estimate unchanged. We expect regulatory hurdles to persist in the near term, which will delay the execution of phase II and III of MIAL (Mumbai International Airport) project. Going forward, debt reduction remains challenging given the muted pre-sales and longer gestation period for collection of cash via FSI sales. At the CMP, the stock trades at a 33% discount to our one-year forward NAV and 0.3x P/BV on FY14E earnings. We expect the stock to trade at a significant discount to NAV, given that 96% of promoters’ holding is pledged, which will remain an overhang. We retain our Sell rating on the stock with a target price of Rs 62 (50% discount to our NAV of Rs124/share),” says Nirmal Bang research report. Shares held by Financial Institutions/Banks Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. To read the full report click on the attachment

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