We maintain overweight on Housing Development and Infrastructure (HDIL) with a price target of Rs 140 a share.
Our March 2016 price target is based on 8x cash Ebitda and inline with the multiple used for other residential property developers.
Downside risks to our overweight rating include: Progress (or lack of it) on debt reduction, pick-up (or not) in launch activity and pre-sales and clarity on eligibility norms for airport project.
HDIL is one of the cheapest stocks (P/B) in the sector on our estimates. Debt concerns for HDIL have eased over the last 3Qs. 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. Approvals for new launches are progressing well and the company has a good launch pipeline going into FY15.
HDIL’s ongoing project portfolio embeds a cash flow of R5,200 crore (pre tax) over next 3-4 years vs current net debt of Rs 2,900 crore.
Accelerated TDR monetisation can be an additional positive in terms of cash generation. Given the focus of the company currently is to monetise ongoing portfolio rather than looking at new launches, we think over the next three years the net debt in the business could trend to minimal levels. HDIL’s focus as of now seems to be on completing its ongoing projects (11msf) rather than looking at launching new sales. Pre sales hence are largely driven by monetisation of existing under construction projects.
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