HDIL fall extends on debt worries

Firm tells analysts concerns are misplaced working on plan to rejuvenate cash flow, reduce dues

Mumbai-based property developer HDIL's attempts to assuage investor concerns about its prospects did little to stem the stock's slide on Thursday on the bourses, for a second straight day. The shares fell 14.3 per cent yesterday and plunged another 22.4 per cent on Thursday, to Rs 74.65.

It had started with the news of a one per cent stake sale by a promoter in the debt-laden company yesterday, raising concerns on the liquidity position. The management, in a conference call with investors and analysts on Thursday, reclarified that the stake sale was done to raise funds to pay for a land acquisition in south Mumbai.

However, market participants interpreted the move as banks refusing to lend to the company and promoters resorting to stake sale to raise the money. The company's high debt levels and the promoters' sizable share pledging — about 96 per cent of their holdings — have heightened worries.

"Why should promoters sell stock to buy properties?" asks A K Prabhakar, senior vice-president, equity research, Anand Rathi Financial Services.

Brokers said they were flooded with sell orders from institutional investors, including foreign ones, amid speculation about the company defaulting on bank facilities and market buzz about a family dispute. The company denied these allegations. The market was abuzz with speculation yesterday that a Delhi-based share financier had dumped a portion of the promoters' holding, as they could not shore up margin calls. This was also denied by the company.

HDIL’s woes have compounded in recent years as high debt levels have squeezed it. The net debt in FY12 was Rs 3,863 crore, largely due to its high working capital needs.

“Over the past five-six quarters, the profits are largely driven by the sale of floor space index (FSI) permissions. They have booked Rs 800-1,000 crore of revenue through this route but the cash has not been generated or collected. This has led to higher debt (receivables) in the books, as debtor days have gone up from 158 in FY12 to 373 days in the first half of FY13. Additionally, the new launches have been subdued,” said Param Desai, who tracks the company at Nirmal Bang Institutional Equities.

In the conference call on Thursday, HDIL's vice-president, finance, Hari Prakash Pande, said they’d already brought down debt by Rs 200 crore and were working to reduce it further — they were looking to monetise some assets in Kochi and Hyderabad, to focus primarily on Mumbai-based projects.

Also, that they were shifting some short-term debt to long-term dues and recovering FSI dues, beside focusing on higher deliveries so that the cash flows could improve.

Anand Agarwal, who tracks the company at Jefferies India, said in a research note, “We believe the debt reduction is difficult to achieve unless its cash collection from FSI transactions and customer advances improves significantly from the current levels.”