Stock Review: Housing Development and Infrastructure (HDIL)

 

The stock of Housing Development and Infrastructure (HDIL) has underperformed in the past three months. The Mumbai based realty player has lost 30% of market capitalisation during the period compared with the 16% decline in the index. The stock's fall can be partially explained by the worsening of net profit in the June 2011 quarter. HDIL's sales fell by 11% sequentially in the June quarter due to moderation in the transfer of development rights (TDR) sales, which accounted for nearly 65% of total sales. TDR sales contracted by 30% year-on-year due to slower approval of projects. Though its interest cost dropped marginally, net profit failed to grow, because of higher depreciation and tax outgo. On a sequential basis, HDIL's financial scenario looks grim even though results may not be comparable since the period of comparison is small for realty firms.

The company has recorded 4% reduction in debt YoY by repaying a part of its debt. It also raised . 170 crore of funds to meet long-term debt requirements in the near term. As per broking firms' reports, it is likely to witness mismatch of cash inflow and outflow in the longer term even if projects in the residential segment will result in higher sales in next year. This can be partially explained by the consistent rise in interest cost besides construction cost for the company.

Higher interest rates in the economy in the past 15 months have resulted in increased cost of borrowing for the housing segment. This is expected to impact housing demand in the coming quarters. With this, real estate companies may continue to face moderation in sales in the coming quarters, which is already visible in quarter ended June 2011.

Compared with its peers, HDIL is better placed due to its diversified portfolio and regular income from the TDR business. At the last trading price of . 102, the company is trading at a trailing P/E of 4.9, which makes its cheaper compared with its peer group. However, investors need to keep a track of demand situation in the domestic realty sector, which will play a crucial role for HDIL in reducing its debt burden.