HDIL –Buy- Angel Securities
HDIL is the largest listed Slum Rehabilitation developer in the most resilient Mumbai market, which contributes a substantial 71% of our GNAV. Execution of the Rs20,000 crore MIAL project is progressing well, sustainable TDR prices and successful new launches via the conventional method provides strong visibility for HDIL.
Further, HDIL seeks to de-leverage its balance sheet on the back of expected high revenue inflow from the MIAL project and the recent low-cost Rs1,150 crore fresh NCD issue, which will reduce its gearing to 0.3x in FY2012E from current level of 0.5x. At Rs284, the stock is trading at 28% discount to our 1-year forward NAV, 8.1x FY2012E EPS and 1.2x FY2012E P/BV.
Hence, we initiate coverage on the stock, with a Buy recommendation and target price of Rs356, which is at 10% discount to our 1-year forward NAV. TDR prices in Mumbai have recovered from their bottom of Rs900/sq. ft in February 2009 to Rs2,700/sq. ft currently. HDIL, being a market leader and controlling around 70% of the TDR supply in Mumbai, is a key beneficiary of revival in the TDR market.
We have assumed Rs2,000/sq. ft (ie. 25% discount from current levels) for its MIAL project. First phase of HDIL’s MIAL project to rehabilitate 20,000 families is on track and likely to get completed by September, 2010 and generate around 11mn sq. ft of TDR. Further, the company will also get 2mn sq. ft of FSI for commercial development in the airport vicinity once the 20,000 families get rehabilitated.
We expect HDIL to sell 5-6mn sq. ft of TDR annually over the next five years on the back of strong ongoing execution of its MAIL project which will generate further 37mn sq ft of TDR over next 5-6 years. The MAIL project contributes around 30% to our 1-year forward NAV.
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