As Dalal Street lowers HDIL, all eyes on airport rehab project

The absence of a major breakthrough in its ambitous Mumbai airport slum rehabilitation project is proving a millstone for Housing Infrastructure and Development Ltd (HDIL).

Analysts also expect issues such as corporate governance, clarity on projects, debt reduction and cash flow expectations to further hit share performance.

Gagan Agarwal and Abhishek Kiran Gupta, analysts with Bank of America Merrill Lynch, downgraded the company on Friday -peers at Jefferies have also done so — while others said the share, already badly beaten, can see any upside only when there’s clarity on the airport project.

A few months back, HDIL had announced that the Mumbai Metropolitan Region Development Authority (MMRDA) had started shifting eligible families from the airport area to the units developed in its Kurla compound.

Analysts had then expected the move will help bring more clarity and momentum to the project, the most important one in HDIL’s kitty.

Hariprakash Pandey, vice-president- finance, however, told DNA Money: “The airport project execution is on track. Families are being shifted. MMRDA is all ready working on it.”

Another analyst from a domestic brokerage, who did not wish to be named, said demand for realty in Mumbai is not very strong at present. Cash flow is an issue with the company.”

Merrill’s Agarwal and Gupta said the stock is highly dependent on approval to the Mumbai airport rehabilitation project.

“We don’t expect the approval over the next 6-9 months as the government continues to be slow on critical projects, particularly the ones favouring developers,” they wrote in a note.

The duo downgraded HDIL to an underperform with a price target of Rs85, much lower than their previous target of Rs156.

They, too, cited a bearish view on the Mumbai residential market, apart from delay in project launches due to lack of approvals, as the main reason for the downgrade.

HDIL has close to 90% of its land bank in the Mumbai region, where analysts say prices have peaked out.

In addition to its massive exposure in the Mumbai market, HDIL is been seen by analysts in a transition mode from a redeveloper to a maker of residences.

“There is more appetite for residences for some time now. But we are also doing considerable work in redevelopment and slum rehabilitation,” Pandey said.

He said the Mumbai realty market would recover the fastest once interest rates decline.

However, Anand Agarwal from Jefferies India remains apprehensive about the transition.

“We are cautious on HDIL’s shift to residential development.With over 91% of its land reserves in Mumbai — which is witnessing a slowing residential demand — and lack of experience in handling challenges involved in residential development, it remains to be seen whether HDIL will be able to make a successful transition into becoming a residential developer from being a slum developer,” he wrote in a note last month.

Another analyst from a foreign brokerage, who, too, did not want to be named, was more cutting: “It’s too late even to downgrade HDIL. The entire real estate sector has already underperformed. The problem with HDIL is corporate governance. There is no clarity or communication on projects and cash-flow drivers.”

Agarwal said in his note that 29% of its land bank — through 8 projects totalling 84 million square feet — is embroiled in controversy or delays.

HDIL also has a standalone debt load of close Rs3,900 crore on its books. The company said it’s on course to reduce this by 15-20% by the end of this fiscal.