Approval delays, weak collections bog HDIL

Housing Development and Infrastructure Ltd (HDIL) is facing a double-whammy of delay in approvals and weak demand in the Mumbai property market, where it has maximum exposure, more so in the redevelopment space.

Certain analysts said the slowdown in the Mumbai market is a worry for all players, but for HDIL there are concerns that slow recovery of payments from land/floor space index (FSI) sales may constrain cash flows.

Abhay Shanbhag and Mayank Kankaria, analysts with Deutsche Bank, in a note last week, reduced the target share price for HDIL by 27% and cut earnings estimates by 16%. “Mumbai and redevelopment largely drive HDIL. Hence, continued delay in new DCR (development control regulations) Bill that has been hampering project approvals in Mumbai since October 2010 is a big overhang. HDIL also suffers from weak collections. Tight liquidity aggravates them as also constrains HDIL’s asset monetisation plans,” the analysts wrote.

With municipal corporation elections around the corner, new regulations such as DCR are expected to come in force only post a couple of quarters, analysts said.

There has been not much development in the Mumbai International Airport Ltd (MIAL) slum rehabilitation project — the biggest redevelopment project with HDIL— due to a lack of further approvals.

Fewer families are moving in despite a significant number of ready rehabilitation units and HDIL is going slow on construction of additional 26,000 units, the Deutsche Bank note said.

While HDIL had completed 7,000 units for the project by the third quarter of last fiscal, uncertainty over finalisation of land for the third phase of the MIAL project also continues, it said.

Not just MIAL, most of HDIL’s projects are facing approval delays which may hit cash flows further.

Also, despite giving a guidance of 10-13 million square feet in the second half of this fiscal, the company has not launched a single project.

Most of the projects HDIL launched post March 2009 have a development based payment schedule and any delay in their execution would translate into weaker cash flows.

“The key concern is recovery of payments due towards the FSI that the company has already sold,” said an analyst from a domestic brokerage.

Out of the four land/FSI deals that HDIL concluded in the last one year, 40% of the proceeds have been received, including Popular Car Bazaar at `800 crore, Goregaon land parcel at `650 crore, Vasai Virar at `650 crore and Eveready land parcel at `86 crore.

“We conservatively expect the sale proceeds from Eveready land parcel to be received only in fiscal 2014,” the Deutsche Bank note said.

Another analyst said delay in recovery of payment from FSI sold is mostly due to the liquidity crunch in the industry. “The company has sold a good amount of FSI, but is still to receive payments, which are not coming in, more so due to a tight funding situation of developers,” the analyst said, adding that delay in approvals was not an issue, as in the current market not many developers would like to launch new projects.

HDIL officials, however, said these issues are macro in nature and are not expected to have any significant impact. Hariprakash Pandey, chief financial officer, HDIL, said, “I do not see any major concern in terms of approval delays. Execution is unlikely to be hit in a major way and HDIL is not the only player to be affected; it is universally applicable to all players in Mumbai. I do not expect any significant effect in terms of execution delays due to this.”

On slower recovery of FSI payments, he said tight liquidity in the market was the main reason.