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Vidya Bala

BL Research Bureau Housing Development and Infrastructure’s (HDIL) financials for the quarter-ended June 2009 are a reflection of the stabilisation being witnessed in the Mumbai realty market.

While the 48 per cent decline in sales and the 66 per cent drop in net profit for the latest quarter over the June 2008 numbers is sufficient indication that the company is far from its peak performance, the sequential improvement (over the March 2009 quarter) suggests that profitability could be back on track.

HDIL’s revenues declined 18 per cent to Rs 295 crore compared with the March quarter; operating profits, nevertheless jumped 87 per cent to Rs 180 crore as a result of better prices from Transferable Development Rights (TDRs) as well as a decline in construction costs. The company has stated that it has sold about 1.8 million sq. ft. at an average price of Rs 1,500 per sq. ft.

Clearly, TDRs accounted for a chunk of the revenues for the June quarter. The average price of TDRs now is also a significant improvement from the Rs 1,000-1,200 per sq. ft. rate at which the company sold in the March quarter.

Operating profit margins at 60 per cent have not only improved over the March quarter, but also exceeded the 44 per cent clocked a year ago, probably reflecting lower material costs. However, the current OPMs do not appear sustainable, as the company had launched residential projects at massive discounts in the June quarter. The effect of this would be felt in its profit margins only after a few quarters. A 40-45 per cent OPM appears more sustainable.

Net profits at Rs 107 crore were a good 73 per cent higher than the March quarter. Pressure from interest costs appears to have abated with a 44 per cent decline in interest cost on a sequential basis. HDIL may see further relief in the coming quarters as a good Rs 1,400 crore of the Rs 1,689 crore raised through qualified institutional placement went to repay loans. With this, the company would not have any principal repayment commitments until October 2010.

HDIL has deployed the rest of the QIP proceeds towards its key project — airport land rehabilitation. The project is expected to gather pace as a result of the infusion.

Going forward, the sustainability of the revived TDR sales/prices (peak rate for the quarter was Rs 2,070 per sq. ft.) and residential sales could hold the key to reviving volumes. In this regard, a marginal improvement in property prices is already visible in the Mumbai market.

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