Subscribe to HDIL say brokerages

Among the housing and construction companies making a bee line for the capital market, Housing Development and Infrastructure Ltd made a splash on Thursday. It is the biggest among three IPOs that opened this week.

HDIL has priced its shares in the range Rs 430-Rs 500, against DLF’s recent offering at Rs 500-Rs 550 per share. The 2.97 crore-share 100% book build offer closes Tuesday.

The issue was subscribed 0.26 times on the first day of the offer. The issue received bids for 76.91 lakh shares against total issue size of 2.97 crore shares. Qualified institutional investors bid for 65.81 lakh shares, subscribing 0.37 times, while the non-institutional investors subscribed their portion 0.32 times by bidding for 9.33 lakh shares. Retail investors bid for 1.7 lakh shares.

Networth Stock Broking has ‘subscribe’ on HDIL, saying the stock would be valued at profit to earnings ratio of 14.1-16.4 times the earnings per share of 2007-08 (Apr-Mar).

“The company has an enterprise value of Rs 823-Rs 954 per square foot of developable area of 112.1 million square foot, which is at substantial discount to DLF’s valuation of Rs 1,680 per sq ft and Unitech’s valuation of Rs 680 per sq ft,” says the Networth report.

Keynote Capitals, too, has ‘subscribe’ on HDIL with a medium term view (over 6-8 months after listing).

As per the brokerage’s estimates, the IPO valuation comes to 11.7 times the current financial year and 6.4 times 2008-09 earnings.

“However, our net present valuation is Rs 443 per share. The IPO pricing, thus, translates into a discount of 2.9% to NPV (based on the floor price) and premium of 12.8% to NPV (based on the cap price),” the report says.

In view of the projects to be completed over next 2-3 years, the brokerage expects HDIL’s sales and net profit to grow at compounded annual growth rate of 55.5% and 57.5% respectively, during FY07-10.

However, Keynote is concerned about the volatility in revenue, as HDIL recognises revenue on the basis of completed projects method.

“Also, with 40% of land reserves being utilised in ongoing projects, HDIL is exposed to the risk of price declines in the balance 60% of land reserves,” says the Keynote report.

HDIL is a real estate development company with significant operations in Mumbai, focusing on residential, commercial and retail projects.

More recently, the company forayed into slum rehabilitation and development. The company is also into land development.