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Indian Stock Markets

Indian Stock Markets

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Published by: mr.avdheshsharma on Dec 20, 2009
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09/24/2012

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abc
Global Research
 
Demand recovery in Mumbai should strengthen TDR pricing.
Prices in most Mumbailand pockets are up 15-20% from the bottom (February 2009). However, Transfer of Development Rights (TDR) prices have risen by 100-120%, to INR1,800-2,000psf. Newlaunches from 3Q-4Q FY10 (the typical new launch period) should sustain TDR demand.We believe TDR pricing could improve a further 20-30% over FY10-11, as residentialdemand drivers continue to sustain cyclical momentum.
HDIL will benefit the most from strong TDR prices.
HDIL will be a big beneficiary givenits position as the largest player in the Mumbai TDR market with annual TDR generation of 7-8m sq ft. We estimate the company could average 5-6m sq ft of TDR sales annually (HDILsold c1.8m sq ft in 1Q FY10). Besides boosting profitability, this would allow HDIL tomaintain leverage and still accelerate the Airport Slum Rehabilitation project.
Upgrade to OW(V) from N(V).
The revival in TDR pricing and expectations of sustainedimprovement in the Mumbai property market have led us to upgrade our target price for HDIL.We raise our TP to INR416 (from INR100). The sharp increase comes as we shift to anupcycle valuation and make changes to several assumptions, including: 1) an increase inrealisation for TDR (20-30%) and 15% higher property prices in FY11 (0% earlier), 2)lowering WACC to 13.7% (14.8% earlier), 3) lowering our NAV discount from 60% (cyclicalbottom valuation) to 10% (business upcycle valuation), in line with its peers DLF and Unitech,4) adding a terminal value equivalent to 14% of our March 2010 NAV of INR361 (INR250earlier), 5) carry forward our valuation base to December 2010 (1-year forward).
Overweight (V)
Target price (INR) 416.0Share price (INR) 334.2Potential total return (%) 24.7
Mar 2009a 2010e 2011 e
HSBC EPS 24.35 10.19 25.43HSBC PE 13.8 32.9 13.2
Performance
 
1M 3M 12M
Absolute (%) 14.4 39.9 106.1Relative^ (%) 2.8 21.7 50.7
Note: (V) = volatile (please see disclosure appendix)
7 October 2009
Ashutosh Narkar *
AnalystHSBC Securities and Capital Markets(India) Private Ltd+9122 22681474ashutoshnarkar@hsbc.co.inViewHSBC Global Research at:http://www.research.hsbc.com*Employed by a non-US affiliate ofHSBC Securities (USA) Inc, and is notregistered/qualified pursuant to NYSEand/or NASD regulationsIssuer of report: HSBC Securities andCapital Markets(India) Private Limited
Disclaimer &Disclosures
This report must be readwith the disclosures andthe analyst certifications inthe Disclosure appendix,and with the Disclaimer,which forms part of it
FIGReal Estate
Equity India
Company report
Enterprise value (INRm) 136823Free float (%) 39Market cap(USDm) 2,440Market cap(INRm) 115,926
Source: HSBC
Index^ BOMBAY SE IDXIndex level 17,135RIC HDIL.BOBloomberg HDIL IN
Source: HSBC
Housing Development &Infrastructure Ltd (HDIL)
Upgrade to OW(V): Leading the Mumbai property pack
 
TDR pricing in Mumbai should increase further despite the120% jump in 1H FY10
 
HDIL should be the biggest beneficiary, leaving room forfurther share price outperformance
 
Upgrade to Overweight (V) and raise target price to INR416
HDIL: valuation snapshotYear to Mar FY08FY09FY10e FY11eFY12e
Net profit (INRm) 14,0617,8013,789 9,45613,825EPS (INR) 65.628.310.2 25.437.2EPS growth 115.8%-56.9%-64.0% 149.6%46.2%ROE 64.3%16.6%6.9% 13.5%17.1%PE (x) 5.111.832.9 13.29.0Price to book (x) 2.02.11.9 1.71.4
Source: Company data, HSBC estimates
 
 2Housing Development & Infrastructure Ltd (HDIL)Real Estate7 October 2009
abc
 
Financials & valuation
Financial statementsYear to 03/2009a 03/2010e 03/2011e 03/2012eProfit & loss summary (INRm)
Revenue 17,504 12,365 21,178 30,957EBITDA 13,384 7,453 13,354 18,898Depreciation & amortisation -41 -56 -67 -76Operating profit/EBIT 13,344 7,396 13,288 18,822Net interest -5,949 -3,329 -2,531 -2,813PBT 7,656 4,674 11,399 17,062HSBC PBT 7,656 4,674 11,399 17,062Taxation 150 -886 -1,943 -3,238Net profit 7,801 3,789 9,456 13,825HSBC net profit 6,707 3,789 9,456 13,825
Cash flow summary (INRm)
Cash flow from operations -12,340 -163 7,232 2,758Capex -78 -150 -150 -125FCF enterprise -6,319 2,130 7,670 2,208Cash flow from investment -78 -150 -150 -125Dividends 0 -744 -930 -1,116Change in net debt 13,114 -17,291 -4,954 857FCF equity -12,268 -1,199 5,139 -605
Balance sheet summary (INRm)
Tangible fixed assets 749 791 875 924Current assets 90,081 97,795 108,105 126,742Cash & others 2,186 3,044 2,998 12,141Total assets 92,368 100,125 110,518 129,204Gross debt 41,433 25,000 20,000 30,000Net debt 39,247 21,956 17,002 17,859Shareholders funds 44,218 65,839 74,467 86,986Invested capital 82,589 87,926 92,301 106,413
 
Ratio, growth and per share analysisYear to 03/2009a 03/2010e 03/2011e 03/2012eY-o-y % change
Revenue -26.9 -29.4 71.3 46.2EBITDA -21.6 -44.3 79.2 41.5EBIT -21.7 -44.6 79.6 41.7PBT -52.1 -38.9 143.9 49.7HSBC EPS -62.9 -58.2 149.6 46.2
Ratios (%)
Revenue/IC (x) 0.2 0.1 0.2 0.3ROIC 18.6 7.0 12.2 15.3ROE 16.6 6.9 13.5 17.1ROA 16.6 6.7 11.0 13.4EBITDA margin 76.5 60.3 63.1 61.0Operating profit margin 76.2 59.8 62.7 60.8EBITDA/net interest (x) 2.2 2.2 5.3 6.7Net debt/equity 88.8 33.3 22.8 20.5Net debt/EBITDA (x) 2.9 2.9 1.3 0.9CF from operations/net debt 42.5 15.4
Per share data (INR)
EPS reported (fully diluted) 28.32 10.19 25.43 37.18HSBC EPS (fully diluted) 24.35 10.19 25.43 37.18DPS 0.00 2.00 2.50 3.00NAV 160.51 177.06 200.26 233.93
 
Valuation dataYear to 03/2009a 03/2010e 03/2011e03/2012e
Premium/(discount) to NAV 2.1 1.9 1.71.4PE* 13.8 32.9 13.29.0FCF yield (%) -10.7 -1.0 4.5-0.5Dividend yield (%) 0.0 0.6 0.70.9
Note: * = Based on HSBC EPS (fully diluted); All NAV figures on this page relate to book value
Price relative
0200400600800100012002007200820092010020040060080010001200
Housing Development & InfRel to BOMBAY SE SENSITIVE INDEX
Source: HSBCNote: Price at close of 6 Oct 2009
 
 
3Housing Development & Infrastructure Ltd (HDIL)Real Estate7 October 2009
abc
 
Demand revival in Mumbaimarkets looks sustainable
Indian property markets, including Mumbai, havereported a sharp revival in volumes over January-June 2009, although volumes slowed down in 2QFY10. We attribute this to a lack of new launches,the rainy season and the annual “Shradh” period(15 days each year, typically in September, whenmost Indians do not make a major asset purchase).However, demand drivers have remained strongindicating that improving fundamentals, alongwith the festive season, could sustain residentialproperty demand.We believe demand in Mumbai’s residentialproperty market is driven mainly by employmentstability and income growth in sectors likefinancial services and corporate head officeoperations, as well as ancillary segments likeKnowledge Process Outsourcing (KPO),entertainment and organised retailing.
New launches and sales (units) over Jan-Jun 2009 highlightsharp improvement in major Indian cities
-5,00010,00015,00020,000
   N   C   R   M   u   m   b   a   i   P   u   n   e   B   a   n   g   a   l   o   r   e   C   h   e   n   n   a   i   H   y   d   e   r   a   b   a   d   T   h   a   n   e
       U      n       i       t      s
New launchesSales
 
Source: PropEquity Research
Many of these sectors have continued to sustainbusiness improvement. We have analysed thefinancial services industry using Indian equitymarkets’ traded monthly value, the insuranceindustry through Annual Premium Equivalent(APE) growth and the banking sector through loangrowth (y-o-y growth of 13.8% and expectationsof 18% in FY10e and 25% in FY11e). We haveanalysed corporate head office operations’stability through Index of Industrial Production(IIP) data, reflecting improving businessconditions for the manufacturing sector.
Leading the Mumbaiproperty pack 
 
Demand revival in Mumbai markets looks sustainable
 
Steady residential demand will improve TDR volumes, keepingprices firm despite the huge run-up of 100-120%
 
Average TDR realisation for HDIL should rise another 20-30%over FY10-11

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