HDIL’s Q1FY09 revenue increased 29% year-on-year (y-o-y) to Rs5.7 billion, in line with our estimate, as the company booked sales on projects covering 0.5 million sq ft and on land development rights of 5.5 million sq ft.
A dominant share of commercial and SRS projects saw the EBITDA margin surging above our estimate to 85% in Q1FY09 from 54% in the same year-ago quarter. The strong operational performance enabled PAT to increase 57% y-o-y to Rs3.2 billion, ahead of our estimated Rs2.1 billion, despite a sharp rise in interest costs.
Work on the Mumbai airport SRS project has begun during the quarter, with 53 acres of land acquired from IL&FS for rehabilitation of existing occupants. In the first phase, HDIL will develop 6–8mn sq ft of rehabilitation area with simultaneous construction of 5mn sq ft of saleable area.
The first phase is expected to be completed in 18–24 months with a dedicated labour workforce of over 3,000 personnel, 10 contractors and over 100 engineers.
In light of the higher interest costs during the quarter, we are moderating our earnings estimates for FY09E and FY10E. We have also reduced our valuation for the airport project to Rs306 from Rs436 to account for the rising cost of debt and increased market risk.
Similarly, these macro concerns see us cutting back our valuation for the core construction business from Rs898 to Rs670. Our target price for the stock thus reduces from Rs1,334 to Rs976.This represents a 112% upside – we reiterate a BUY.