Housing Development & Infrastructure(HDIL)

HDIL-Housing Development & Infrastructure, a Mumbai-based real estate player, offers vast potential based on its strong project pipeline and imminent upsides from GVK Slum Rehabilitation Scheme (SRS) and approaching special economic zones (SEZs). HDIL has presence across all key segments – residential, commercial, retail, SEZs and particularly SRS. Presence in prime Mumbai property market adds to the advantage. HDIL has development pipeline of approx. 120mn sqft (excluding GVK SRS and SEZs) – we estimate HDIL’s NPV at Rs444bn or Rs2,076/sh.

We assign option value of Rs84/share for Dharavi project (excluded in our NPV). Initiate coverage with BUY and 18-month price target of Rs2,076/sh.Significant upside from SEZs. HDIL has appreciable land in Vasai-Virar and intends developing a multi-product SEZ across approx. 5,000 acres (~2,500 acres in phase I) that would include industrial development, IT/ITES parks, residential townships and other commercial developments. Also, HDIL is building up a multi-service SEZ in Bhayander across 600 acres (~450 acres in phase I). Both projects will be developed over the next 9-12 years. Based on potential development of >300mn sqft requiring an investment of ~Rs594bn, we value the SEZs at ~Rs191bn or Rs891/sh. HDIL also intends building a 500MW power plant alongside a port at its multi-product SEZ. Robust project pipeline. HDIL is executing ~120mn sqft of saleable area in the next 5-7 years (37 projects). 23 projects with 42.7mn sqft developable area are ongoing. Of the total land bank, ~95mn sqft (79%) fall within Mumbai Metropolitan Region and ~5.6mn sqft (5%) under SRS. We value the projects at Rs143bn or Rs667/sh.

Airport slum rehab adding value. HDIL is building up/rehabilitating 276 acres of slum land adjacent to Mumbai airport where it and could generate ~7.5mn sqft salable space, and ~31mn sqft of transferable development rights (TDRs) through rehab. The 8-year project involves reclamation of ~85,000 slum dwellers. We estimate the value of this project at Rs108bn or Rs503/sh. Presence in lucrative Mumbai market. HDIL’s foothold in the Mumbai property market via land bank and expertise in SRS will help it capitalise on the strong demand in the region, which has perennial land shortage. Attractive valuations. HDIL is trading at a significant discount to our NAV estimate of Rs444bn or Rs2,076/sh. Based on FY08E, FY09E and FY10E EPS estimate of Rs39.4, Rs67.5 and Rs92.2, HDIL trades at 28.9x, 16.9x and 12.4x P/E respectively, we expect earnings CAGR at 53% over the next three years.

Report card-

PE ratio                                       37.81                                  07/01/08
EPS (Rs)                                      30.10                                   Mar, 07
Sales(Rs crore)                       464.89                                 Sep, 07
Face Value(Rs)                       10
Net profit margin(%)           44.12                                    Mar, 07
Last dividend (%)                 20                                          11/10/07
Return on average               74.67                                    Mar, 07