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Tuesday, October 7, 2008

HDIL:-A great buy at present level of 120

Duration:6-9 months
Traded in:Nse-bse

BUSINESS:HDIL, the erstwhile Dheeraj Group, was incorporated in 1996. Its expertise lies in developing slum rehabilitation projects and ensuring their timely delivery.Since then, it has developed 29 projects covering approximately 28.8 million sq ft of saleable area, including 14.4 million sq ft sold to other builders, primarily in the Mumbai Metropolitan Region (MMR). An additional 3.3 million sq ft of rehabilitation housing area under the Slum Rehabilitation Scheme (SRS) has also been developed.HDIL follows a build and sell model for all properties in residential, commercial and retail segments. The company has also forayed into high-growth businesses like SEZs, hospitality, oil & gas, entertainment and media. Its total land reserves, including transferable developable rights (TDR), comprise 196 million sq ft of saleable area.This will be developed through 20 ongoing projects covering 88 million sq ft and 14 more projects to be launched in future. The company is also developing 2,300 acres under SEZs. Approximately 87% of HDIL’s land reserves are in MMR, which gives it a competitive advantage, since this is the prime real estate market.

CURRENT PROJECTS:The company is focusing on timely execution of ongoing projects in Mumbai. The biggest among these is the Mumbai airport slum rehabilitation project. This project will generate about 10 million sq ft of land TDR and around 45 million sq ft construction TDR for HDIL over a span of five years. After the completion of this project, it will also be awarded certain commercial land in the airport by GVK.Currently, under phase I, work for rehabilitation of 85,000 slum families is being carried out at two sites. The first site is a 53-acre plot, of which, about 40 acres will be used for rehabilitation and the remaining will be used for retail, commercial and hospitality sectors.Against this, the company has already started receiving TDRs. About 1.7 million sq ft TDR has been put on sale, which will be used to fund construction activity. The second site is a small 7-acre plot. Out of the 40 acres at the first site, around 6 million sq ft is under construction, which will rehabilitate about 20,000 families. Another 5 million sq ft of commercial space is also under construction.This project is a self-funded project, as the company will keep receiving TDR in proportion to the construction activity it undertakes. Significant revenue will accrue to the company as phase I will be completed in 15 months. Another major project for HDIL is land development for the Andheri-Versova-Ghatkopar link. The company plans to set up commercial and retail establishments at metro stations.Though it’s too early to talk about this project, the project pipeline looks promising for HDIL. The company, along with Lehman, has also bid for the redevelopment of Asia’s biggest slum, Dharavi. HDIL recently completed and sold its Dreams mall in Mumbai’s central suburbs. Sale of plotted land continues to contribute to its topline.

FINANCIALS:The company has shown phenomenal growth in sales, as well as profit. Its sales have witnessed a CAGR of around 144% over the past four years, while net profit has grown more than three-fold during the same period. Though its interest cost increased multi-fold on account of high interest outgo, the company was able to maintain its net profit margin at 58%, higher than the industry average of 45%.“The company will require around Rs 1,000 crore to fund its future projects. This can either be sourced through debt or equity, or maybe private equity at the SPV level,” said Hariprakash Pandey, assistant general manager, finance, HDIL. “We expect the revenue and net profit to grow at 30% on a y-o-y basis,” Mr Pandey added.The multi-product SEZ at Virar and SRS will get tax benefits and reduce the company’s overall tax liability. Given its proven ability to complete SRS projects, HDIL’s financial viability seems positive.

Conclusion:HDIL operates in a niche space of slum rehabilitation, with little competition. Since it is present in the realty sector, it can’t be insulated from the slowdown in this industry, but its product portfolio is well-diversified to face such challenges.At present price of 120 its a great buy.Just have a glance at its 52 week high its at a staggering 1432 rs level.People have opted for it at that time and they are the ones exiting in panic.But at these levels its sure to give one a hell lot of returns in the coming days.


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