HDIL: Good quarter, but concerns remain

The company has reduced its debt pile a bit, but new launches and asset sales will decide the extent of improvement in cash flows

Through the past three months, the HDIL stock has more than doubled, in line with some of its peers that recorded sharp gains, as well as plans to reduce debt. The stock has gained 45 per cent through the past month on expectations of good results. And, the company did not disappoint — higher revenues (up 47 per cent year-on-year), increasing cash flows and debt reduction in the March quarter were positives. At Rs 110 crore, the company’s net profit for the March quarter (against a loss of Rs 280 crore in the year-ago period) was better than expectations, led by revenue from the Premiere project in Kurla (Mumbai), asset sale and tax reversals.

As the company follows a project-completion method of accounting, the completion of the Kurla residential project helped to post higher numbers.

JPMorgan analysts believe in FY15, revenue and earnings growth will see a significant rise due to completion of three-four residential projects and new floor-space-index (FSI) sales. During the March quarter, the company concluded new FSI sales worth Rs 200 crore; these were accounted for by its Goregaon and Vasai-Virar projects in Mumbai’s suburbs.

While slowing sales have been an issue, the Street is also concerned about the company’s debt. HDIL’s consolidated net debt stands at Rs 3,284 crore, even after repayment of about Rs 500 crore in the past two quarters, including repayment Rs 360 crore in the March quarter. While customer advances and collections (HDIL collected Rs 221 crore on this account in the March quarter) have aided repayments, realisations from earlier FSI sales and the sale of its 45 per cent stake in a hotel project in Mumbai (part of its associate company, HDIL Leisure) also helped.

Aided by improving cash flow, HDIL estimates debt reduction of Rs 600-800 crore in FY15. In addition to higher customer collections on new launches and existing inventory sales on the operational front, higher asset sales at Kurla and Hyderabad could boost cash flow and help reduce debt. In this regard, response to the 550-acre affordable township project (at Virar, Mumbai) in the second half of FY15 is important.

While there has been progress on various aspects, many analysts continue to have a ‘sell’ rating on the HDIL stock. For most, the key concerns are the high promoter stake pledge (96 per cent of the 37 per cent stake), litigation relating to the airport project and debt. Of the 11 analysts tracking the stock, six have ‘sell’ ratings, four ‘hold’ and one ‘buy’. The consensus target price is Rs 74 and, given the current price of Rs 96, there is little scope for further appreciation.