Housing Development And Infrastructure Ltd. (HDIL) is entering the capital market on 28th June, 2007 with a public issue of 2.97 crores equity shares of Rs.10 each in the price band of Rs.430 to Rs.500 per share. The issue also has a green shoe option of upto 44.55 lakh equity shares.
The company claims to have 112.1 million sq. ft. of saleable area to be developed through 21 ongoing projects under construction and development stage with an area of 45.5 million sq. ft. of saleable area while 11 projects are planned for future developments with a saleable area of 66.6 million square feet. The company further claims that 92.8 million square foot of saleable area which works out to 82.8% of company's total land reserve are in Mumbai Metropolitan Region (MMR), which is the commercial capital of India and an important real estate market. Sounds interesting.
Now let's see what this MMR is. It is an area of 4,355 square kilometers,comprising Municipal Corporation of Great Mumbai, Thane, Kalyan, Navi Mumbai and Ulhasnagar; 15 Municipal Towns; Seven Non-Municipal Urban Centres and 995 Villages. It broadly covers Mumbai City and Mumbai Suburban Districts and parts of Thane and Raigad District.
Of 92.8 million square feet of saleable area in MMR, about 63.79 million square feet is in Vasai - Virar region while about 6.66 million square feet is in Panvel, Navi Mumbai. About 15.78 million sq. feet of saleable area is in Palghar, Kochi and Hyderabad. Basically, area in Vasai and Virar are of low value, with very low demand. Whenever, realty cycle takes a downturn, land in such area is most sensitive and becomes difficult for the developers to even sell it on cost-to-cost basis. This was trend prevalent between 1998 to 2003 in this region, when all the developers struggled to survive.
Apart from this, for any realty company, land area and saleable area differs, depending upon the availability of floor space for development (called FSI in Mumbai and FAR in other parts of the country), set back, reservations etc. The company in its RHP, at some places gives plot area while at other places, gives saleable area which is a confusing state of presentation. For example, Agashi Project at Virar, states plot area at 44.43 lakh sq. ft. while available saleable area is 34 lakh sq. ft. Uniformity for disclosure of land bank should have been maintained by the company.
Present equity of the company is Rs.180.30 crores which would rise to Rs.214.50 crores post exercise of Green Shoe option. If the same is valued at the upper band of Rs.500 per share, market capitalization of the company works out at Rs.10,725 crores. Add15% appreciation or difference between Primary and Secondary Market Valuation the same works out at Rs.12,300 crores. Since, market value of land bank to market capitalization ratio at 2 is perceived to be acceptable and comfortable, the present market value of the land bank of the company needs to be above Rs.25,000 crores, which does not appear to be so.
For FY 07 the topline of the company was Rs.2,096 crores with PAT of Rs.548 crores resulting in an EPS of Rs.30.45. As at 31-03-07 the net worth of the company was at Rs.732 crores with NAV of Rs.40.70 per share. This means, major portion of net worth was earned in FY 07.
The company claims to have developed 24 projects covering about 11.30 million square feet of saleable area including approx. 5.70 million sq. feet of land sold to other builders after land development, primarily in MMR. The company also constructed additional 2 million sq. feet of rehabilitation housing area under slum rehabilitation schemes. Inspite of such a huge land area having developed, that too with good property market since 2003, the net worth of the company as at 31-03-07 is Rs.732 crores only.
Hence, share at upper band of Rs.500 is definitely expensive, when compared to other realty stocks available in the secondary market. At lower band of Rs.430, investment looks reasonable.