Wednesday, February 15, 2012

HDIL Bought Significantly by Goldman Sachs, Despite Poor Q3

By Staff Reporter

Housing Development & Infrastructure Ltd (BSE: 532873, NSE: HDIL) counter on Tuesday witnessed a significant buy of 22.15 lakh shares by the FII Goldman Sachs Investments Mauritius I Ltd, which amounts to around 0.53% of the total shares in the company. This significant buy worth Rs. 21.66 crore was undertaken by Goldman Sachs in BSE.

Housing Development & Infrastructure Limited (HDIL) is a leading Indian real estate development company, operating in the Mumbai Metropolitan Region. HDIL Group claims to have completed more than 100 million sq ft of construction in all verticals of real estate in the last one decade.

Goldman Sachs Investments Mauritius I Ltd is one of the eight Indian FII accounts of the US based leading investment banking and securities major, Goldman Sachs Group.

HDIL’s specialization has been in slum rehabilitation. It undertakes slum rehabilitation projects under a Government scheme administered by the Slum Rehabilitation Authority (SRA), offering development rights in exchange for clearing and redeveloping slum lands, while providing replacement housing for the displaced slum dwellers. Due to its focus on Mumbai which has the maximum slums as well as the largest slum redevelopment program, HDIL is assessed as India’s largest slum rehabilitation company, and had also bagged the Mumbai International Airport Slum Rehabilitation project, the largest of its kind, more than four years back. HDIL claims to have rehabilitated 30,000 families under such schemes.

A quick check into Goldman Sachs’ portfolio in Indian listed real estate space shows that the US major is not holding stakes upwards of 1% in any real estate company as of December 31st, and as such, Monday’s HDIL buy by GS assumes significance.

HDIL's residential projects include apartment complexes, towers, and townships; their commercial projects include office spaces, multiplexes cinemas etc; and in retail, HDIL focuses on building shopping malls. In recent years, HDIL has also diversified into sectors like energy, hospitality and Special Economic Zone (SEZ) development.

Interestingly, the massive buy of HDIL by Goldman Sachs on Monday was not against any selling by any identified institutions or promoters, but probably picked up from the wider market. In the Indian market, buyers & sellers are identified only if they buy or sell over 0.50% of the total shares in the company.

HDIL has a reasonable promoter’s stake of 39.17% as per the latest Share Holding Pattern (SHP) for the quarter ending December 31st. In Q2, ending September 30th, the promoters had picked 0.61% stake to reach the current level. If the warrants held by a promoter is exercised, the promoter stake will be higher, at 42.21%.

On a fundamental basis, Goldman Sachs seems to have taken a contrarian call on HDIL. Like similar real estate companies, HDIL had never really scaled back to FY’08 levels. Both consolidated revenues and profits had fell significantly in FY’09 and FY’10. During last fiscal there was an up-tick, but it was still a far cry from the boom of FY’08 both in revenues and profit.

In the current fiscal year-to-date, there was a year-on-year growth in revenue during Q1, but profits slipped again. In Q2, situation deteriorated further, with both revenue and profits falling year-on-year as well as quarter-on-quarter. 

And there is no respite seen in HDIL’s Q3 results, which were also published on late Tuesday. On an year-on-year basis Q3 revenue has fallen by 8.8% to reach Rs. 422.57 crore, and net profit has fallen by 31.72% to reach Rs. 155.80 crore.

It is noteworthy that Goldman Sachs’ significant buy has come on the same day as the disastrous results. Evidently, the FII seems to have taken its cue not from the company’s results, but from two much-awaited regulatory changes in Mumbai’s real estate sector. One of them - 33% increase in Floor Space Index (FSI) - has already been notified by the Maharashtra Government, and as and when it comes into effect, HDIL is a big beneficiary.

Another awaited change is about Transfer of Development Rights (TDR), which is expected after a new Brihanmumbai Municipal Corporation (BMC) is sworn in, and TDR being related to slum re-development, HDIL is expected to be a beneficiary.

HDIL has also promised, during Tuesday’s results release, to reduce its massive Rs. 4100 crore debt by about 20-25% by the end of this fiscal.

Another cue for Goldman Sachs is, of course, HDIL’s deep fall during the past three quarters and the recent rebound. The scrip which had a 52-Week High of Rs. 198.90 in BSE on 7th April 2011, fell steadily for nine months to reach a 52-Week Low of Rs. 52.10 on  2nd January 2012, falling by nearly 74%.

Thereafter the scrip rebounded along with the market recovery, and on expectations of a good Q3. Goldman Sach’s buy has come at Rs. 97.80, after the scrip has rebounded by near 88%.

HDIL closed Tuesday’s trade at Rs. 104.10 in BSE, up by 6.82%. On Wednesday it opened slightly up in BSE at Rs. 105 and is now trading at Rs. 110.90, up by 6.53%.

It remains to be seen whether the current rally will be punctured due to the sharp run-up in prices, which is in excess of 100% now from the lows, as well as the significant FII presence in the stock. Institutional holders in HDIL include Platinum Investment Management Ltd, Orbis Sicav Asia Ex-Japan Equity Fund, Fidelity Management and Research Ltd, Copthall Mauritius Investment Ltd, CLSA Mauritius Ltd, Stichting Pensioenfonds ABP, Fidelity Investment Trust, Credit Suisse Singapore Ltd, and ICICI Prudential Life Insurance Company Ltd.

Among these funds, CLSA Mauritius had sold off slightly more than one-third of their holdings on 20th January at Rs. 81.60 a share.

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