Stock Review: Housing Development and Corporation (HDIL)

Housing Development and Corporation (HDIL) has outperformed the ET Realty Index in the past one month, after reporting robust financial numbers in the fourth quarter. The company is reaping benefits of the scheme under Transfer of Development Rights (TDRs) and higher residential sales.

The growth momentum for HDIL, which clocked . 1,849 crore in revenue during FY11, is likely to continue in the next few quarters due to the sustained demand for its projects from middle-income groups in the country.

The company recorded a 20% year-on-year growth in revenue on account of higher sales from the TDRs segment, besides improved demand from the residential segment for the quarter ended March 2011. The demand for TDRs has improved in the Mumbai region with fast approval of projects, which were almost stagnant since November. With the lower interest outlay due to reduction in debt, HDIL's net profit grew by 11%.

It reduced its debt by raising . 1,157 crore in September 2010 through qualified institutional partnership route. A portion of the funds will be used for slum rehabilitation projects. The fund-raising exercise has helped in reducing its debt-equity ratio to 0.4 from 0.6 a year ago. It is among the few realty companies with the lowest debt. Further, its strategy to diversify away from TDR projects to residential projects has helped in generating cash flows in FY11. The company had earlier struggled to maintain operating cash flow. HDIL's inventory in the mid-income residential segment is lower due to better demand scenario backed by rising income levels. To meet the growing demand, it has a strong line-up of the projects, which are expected to complete in 2012. HDIL looks promising with diversified portfolio, which is expected to pay off in the coming years. At the current price of . 174, the HDIL stock trades at seven times its FY11 net profit of . 823 crore. This is cheap compared to the industry's average P/E of 31 for medium and large realty firms.