Sunday, January 07, 2018

Housing Development & Infrastructure Ltd: Buy
CMP: Rs.63.95
Target:  Rs.381
Introduction: Housing Development and Infrastructure Limited (HDIL) is engaged in real estate activities with own or leased property. The Company has operations basically in the Mumbai Metropolitan Region (MMR). It has a range of projects in its kitty starting from  residential, commercial and retail projects, to slum rehabilitation to land development. Its residential projects consists of apartment complexes, towers and townships. Its commercial projects include premium office spaces and multiplex cinemas. In retail segment, it is focused on building shopping malls. Its slum rehabilitation projects is under the government scheme of offering development rights in exchange for clearing and redeveloping slum lands, while providing replacement housing for the displaced slum dwellers. Its commercial and retail projects include Dream Mall, Harmony Mall, Annex Mall, Kulraj Mall and HDIL Industrial Park. Its residential projects include Hill View, Dreams and Dheeraj Affaire.

Shareholding Pattern: The promoters hold 36.49%, while the general public holds 63.51%. Among the general public Mutual Funds hold 3.67% and Foreign Portfolio Investors holds 33.98%. The corporate bodies hold 5.63%, leaving very little in the hands of the retail investors.

Financials: For FY17, the total income of the company on standalone  basis was Rs.746.18 crores, as against Rs.1191.10 crore in FY16. The EPS of the company stood at Rs.4.08 as against Rs.8.17 in the same period previous year. The figures of the two corresponding years however, cannot be compared because sudden demonetization at the end of CY16 had sucked the juice out of the real estate and construction sectors.

On standalone basis, from September 2017 quarter the things have started improve with net sales touching Rs.163.21 crore as against Rs.89.85 crore in the June, 2017 quarter. The net profit of the company also improved on sequential basis to Rs.61.01 crore as against Rs.7.83 crore in the Q2FY18. While OPM remained almost flat at 11.27% (12.33% in Q1FY18), the NPM shot upto to 37.77% as against 9.12% speaking sequentially.
The H1FY18, EPS of the company came at Rs.1.59. The company  is expected to achieve a standalone turnover of Rs.550 crore with EPS projection of Rs.6-7.

Triggers:
#HDIL is among the top-five listed real estate companies in India. Over the last four decades, the group has done pioneering work in the area of affordable housing. While all real estate companies focus on building, HDIL also focused on land, especially in Mumbai where over 60% of habitable land is occupied by slums. By creating a model for rehabilitating slums, the compnay has freed up land for housing and infrastructure projects such as roads, pipelines and, most recently, the Mumbai airport expansion project which is probably the largest rehabilitation project of its kind in the world. HDIL caters to a diverse set of customers and this is reflected in its portfolio which features premium commercial projects, townships for housing India’s burgeoning middle class families and affordable housing for the bottom of the pyramid.

#It is a well known fact that, Indian economy is largely cash driven with substantial transactions taking place in cash and very marginal percentile in digital transactions. With the decision of demonetization, Investment power of consumers was affected due to cash not being readily available. Consequential to this, cash-sensitive sectors like Small Scale Industries and real estate sector suffered heavily during the second half of the CY16. Bank changed main focus on the single task i.e deposit and withdrawals; with the  result that their core function of lending was adversely affected, which again added adversity to Real estate as all stakeholders in this sector are financed by them. However, due to the implementation of GST Supply chain mechanism in real estate sector has revamped, as cascading effect in the tax was reaped off. Currently, the sale of land and buildings have been kept out of the ambit of GST and hopefully expected to be continued in future too. Construction of land and building will benefit from the rates declared for cement, bricks, and iron under GST, but looking at the rate specified, real estate sector is expected to be neutral.

#In the phase of major challenges, HDIL made a significant progress. The Company has successfully Registered its ongoing Projects under The Real Estate (Regulation and Development) Act 2016 which came into force with effect from May 1, 2017. Looking ahead to 2018, the Company will launch many affordable housing projects which will strengthen Company’s financial Position and flourish its arena of operations. Presently, HDIL is one of the largest developer and land bank owner in Mumbai Metropolitan Region.

#Company follows project completion method and financial performance comparison will not be appropriate, especially in view of demonetization and implementation of the GST. On consolidated basis the  Company recorded:-
• A Turnover of  Rs.74,617.74 Lacs in FY17 as against Rs.1,19,239.50 Lacs in the previous year.
• The Company’s Profit from operations for the year ended March 31, 2017 was Rs.20,856.28 Lacs as against Rs.28,642.35 Lacs in the previous year.
• The Net Profit for FY17 was Rs.17,524.58 Lacs as against Rs.34,035.15 Lacs in previous year.

# In line with the vision & mission of “Housing for All” by 2022 for “MAKE IN INDIA” concept, the Company launched “Budget Homes” in affordable housing segment in Mulund - Mumbai which provide 1BHK at Rs.45 Lacs, and the same after receiving a very good response got fully booked. The thrust given to affordable housing has been extremely encouraging. Developers, specially HDIL can now avail a 100% tax deduction on profits and gains if they construct affordable housing units. No other major sector of the economy has been given such attractive incentives. Further, infrastructure status for affordable housing has opened up more avenues of lower Cost, longer tenor funding in the Real Estate Sector. The margins in the affordable housing segmentis expected to be above 30%, in this segment.

#As of 31st March, '17: the company has Reserves and Surplus of Rs.10,886.51 crore, while the total current liabilities are Rs.3408.95 crore, which is much better than FY16 figures. The market cap of the company is only Rs.2,775.46, against its total land bank of around 20 crore sq.ft and its FY170 consolidated turnover of Rs.758.2 crores.

#HDIL is one of the cheapest stocks (P/B) in the Real Estate sector. Debt concerns for HDIL have eased over the past few quarters and the Cash Generation from core operations has been improving. Progress on asset sales would be the key to watch out for and it would help sort the cash flow/execution issues. Approvals for new launches are progressing well and the company has a good launch pipeline going for FY19. A leading brokerage house noted HDIL’s balance sheet cost of land is at 50-70% lower than the current market value. As of March 2017, the company has a total debt of Rs.2,476.56 crore.

#The stock of HDIL which closed at Rs.63.95 on last Friday, is more than 80% lower than its 7-year high price and more than 95% lower than its all-time high  price level of Rs.1,113, it hit on January 8, 2008.  The face value of the shares of the company is Rs.100, unlike Unitech Ltd and DLF Ltd which have Rs.2 as face value.
The Book value of the shares of the company is Rs.264.59, while its P/E is 19.09 against the sector P/E of 45.12. A decent P/E re-rating can take the scrip above Rs.133 in the short to medium term.

Conclusion: The stock closed above its 50D, 100D  and 150D EMAs on last Friday, which is a positive sign for the bulls. The RSI for the scrip is around 61, while MACD is in the buy mode. However, the short term oscillators are slightly in the overbought zone. The share after forming a double bottom on the daily chart is all set to break the resistance zone of Rs.66-67. On November 17, 2017 Morgan Stanley (France) S.A.S. bought 29,18,400 shares of Housing Development and Infrastructure Ltd at Rs.64.26 on the NSE; which now forms somewhat a base price for the shareholders.
Considering all the factors above, I find next target for the scrip of HDIL is Rs.84 and upon breaking of Rs.92-94 zone on the upside we can look for targets of Rs.97-99-121-133. The 12-18 months target for the scrip comes to around Rs.381.
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