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HDIL
JP Morgan (Overweight)
CMP: ₹118.2
Target: ₹140
We visited the construction sites of HDIL and interacted with onsite project managers and sales reps. In summary, progress on the company’s Kurla project has markedly picked up pace after a gap of over 2 years. The company plans to hand over 10,000 units to the Government in an accelerated manner by the first quarter of 2016. This will release around 2.5 msf TDR (transfer of development rights) to the company. If the company potentially chooses to monetise the TDR, then it could release pre-tax cash flows, which could be used to accelerate debt reduction and new launches.
Further, the company is now gearing up to launch arguably Mumbai’s largest affordable housing project in Virar (800 acres). This could set the stage for HDIL to emerge as the city’s largest affordable housing developer and lay out a road map over the next several years for the monetisation of its over 4,000-acre land-holding in this area.
HDIL is one of the cheapest stocks (P/B) in the sector. Debt concerns for HDIL have eased over the last 3 quarters. Cash generation from core operations has been improving. Progress on asset sales would be the key to watch for and would help sort the cash flow/execution issues.
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