HDIL’s growth slows due to real estate woes
The Hindu Business Line, January 29, 2009, p11
Vidya Bala BL Research Bureau
Substantial correction in prices of transferable development rights (TDR), cut back on land purchase by developers and TDR sales that are yet to be booked led to a decline in revenues and profits for Housing Development and Infrastructure Company (HDIL) in the third quarter of FY-09.
For the quarter, HDIL’s sales declined by 36 per cent to Rs 314 crore compared with the December quarter last fiscal, while net profits declined 31 per cent to Rs 184 crore.
But for a write-back of tax credit received by the company, the net profits would have declined sharply by 72 per cent.
However, the positive aspect of HDIL’s business is that the massive airport slum rehabilitation project appears to be on track, what with the company already selling some of the TDRs generated from the project.
HDIL earns a substantial part of its revenue from sale of TDRs/FSIs that it generates by developing slump rehabilitation projects.
Despite huge working capital requirements, all the other slum rehabilitation projects are also on track, thus providing assurance of TDRs from the same.
PRICE CORRECTION
The company’s management has stated that TDRs are quoting at Rs 1,000-1,200 a square feet at present.
This is a sharp correction to the Rs 2,000-2,500 a sq ft about two quarters ago.
To recollect, TDR prices started correcting after the Supreme Court ruling (on redevelopment of land) in September, which allowed more areas under redevelopment.
This was expected to increase supply of land and reduce high TDR prices.
The company holds one million sq ft of TDRs that it can cash in on.
Another aspect that has to be noted while reading into HDIL’s results is that unlike most construction companies, HDIL follows completed project method of accounting (a relatively conservative approach to percentage completion method) as it generates TDRs only on completion of rehabilitation work.
This essentially means that HDIL would have huge development costs (added to inventory) followed by periods of lumpy revenues.
However, TDRs once generated can be relatively quickly converted to cash by selling them in the market.
NO RESPITE ON COST
Lower realisations could have led to operating profit margins dipping to 30 per cent from 56 per cent a year ago.
The margin, nevertheless, remains good enough for a real estate business.
Cost of construction and development as a percentage of sales and work-in-progress witnessed only a marginal decline suggesting that commodity price declines is yet to provide relief.
A massive jump in interest costs from less than a crore over a year ago to Rs 14 crore for the latest ended quarter also suggests that the company is yet to benefit from lowering interest rates.
The Hindu Business Line, January 29, 2009, p11
Vidya Bala BL Research Bureau
Substantial correction in prices of transferable development rights (TDR), cut back on land purchase by developers and TDR sales that are yet to be booked led to a decline in revenues and profits for Housing Development and Infrastructure Company (HDIL) in the third quarter of FY-09.
For the quarter, HDIL’s sales declined by 36 per cent to Rs 314 crore compared with the December quarter last fiscal, while net profits declined 31 per cent to Rs 184 crore.
But for a write-back of tax credit received by the company, the net profits would have declined sharply by 72 per cent.
However, the positive aspect of HDIL’s business is that the massive airport slum rehabilitation project appears to be on track, what with the company already selling some of the TDRs generated from the project.
HDIL earns a substantial part of its revenue from sale of TDRs/FSIs that it generates by developing slump rehabilitation projects.
Despite huge working capital requirements, all the other slum rehabilitation projects are also on track, thus providing assurance of TDRs from the same.
PRICE CORRECTION
The company’s management has stated that TDRs are quoting at Rs 1,000-1,200 a square feet at present.
This is a sharp correction to the Rs 2,000-2,500 a sq ft about two quarters ago.
To recollect, TDR prices started correcting after the Supreme Court ruling (on redevelopment of land) in September, which allowed more areas under redevelopment.
This was expected to increase supply of land and reduce high TDR prices.
The company holds one million sq ft of TDRs that it can cash in on.
Another aspect that has to be noted while reading into HDIL’s results is that unlike most construction companies, HDIL follows completed project method of accounting (a relatively conservative approach to percentage completion method) as it generates TDRs only on completion of rehabilitation work.
This essentially means that HDIL would have huge development costs (added to inventory) followed by periods of lumpy revenues.
However, TDRs once generated can be relatively quickly converted to cash by selling them in the market.
NO RESPITE ON COST
Lower realisations could have led to operating profit margins dipping to 30 per cent from 56 per cent a year ago.
The margin, nevertheless, remains good enough for a real estate business.
Cost of construction and development as a percentage of sales and work-in-progress witnessed only a marginal decline suggesting that commodity price declines is yet to provide relief.
A massive jump in interest costs from less than a crore over a year ago to Rs 14 crore for the latest ended quarter also suggests that the company is yet to benefit from lowering interest rates.
Posts
No comments:
Post a Comment