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HDIL – Review and Recommendation

July 3, 2007

Housing Development and Infrastructure (HDIL), part of the Wadhwan group develops real estate mainly in the Mumbai Metropolitan Region. Since its incorporation in 1996, the company has developed 23 projects covering approximately 11 million square feet of saleable area, including about 5.7 million square feet of land sold to other builders after the development. It also have constructed an additional two million square feet of rehabilitation housing area under the slum rehabilitation schemes. Dewan Housing Finance Corporation, a listed company is part of the promoter group.

HDIL is coming out with an IPO to fund acquisition of land or land development rights for its ongoing and planned projects. The price band is Rs 430- Rs 500.

HDIL has land reserves of approximately 112.1 million square feet of saleable area to be developed through 32 ongoing or planned projects. The company has 21 ongoing projects under construction and development, aggregating to approximately 45.5 million square feet of saleable area, and has 11 planned projects aggregating approximately 66.6 million square feet of saleable area. Of the land reserves, about 73.4% is actually owned by the company; and 15.7% of it is to be acquired under memorandum of understanding (MoU) and agreements.

Advances from customers are Rs 512.1 crore end March 2007, representing amounts that have been received from customers but not booked by the company as sales. As and when the projects are completed, this amount will percolate to the top line. This represents 43% of the reported FY 2007 revenue. There was an inventory of Rs 1324.48 crore (approximately 98% constitutes work in progress) end March 2007.

On the flip side:
Of the total land bank, 82% is in Mumbai Metropolitan Region, with a significant proportion in the Vasai-Virar region and in residential projects. The currently benchmark rates in Vasai-Virar region are in the range of only Rs 1000-1800 per square feet. In the year ending March 2007, 69% of reported revenue was derived from selling of development rights/floor space index (FSI).

Valuation:
Knight Frank had valued HDIL’s per share value at Rs 984. Cushman & Wakefield has valued per share value at Rs 1028. These valuations are six months old and the real-estate market condition has changed after that.

Consolidated FY 2007 EPS on post-issue equity, assuming green shoe option is exercised, works out to Rs 25.3. At the offer price band of Rs 430 – Rs 500, the P/E range is 17-19.8, respectively. Comparable companies location-wise (focused on Mumbai) are: Akruti Nirman (mainly into slum rehabilitation) and Orbit Corporation (mainly into redeveloping projects) are trading at P/E of 31.5 and 16, respectively. However both these companies are much smaller compared with HDIL. Comparable listed player in terms of size, Parsvnath Developers (with development rights of approximately 151 million square feet), is currently trading at 22 times its FY 2007 earning.

Recommendation:
Investors willing to hold for long term / with some risk appetite should apply as their will be listing gains for sure.

Real Estate Major – DLF will list on July-5th on the bourse.

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