CP | Dalal Street

Himatsingka Seide acquires 80% stake in Divatex

July 3, 20071 min read

Himatsingka Seide has acquired an 80% stake in Divatex Home Fashions Inc. New York through its subsidiary Himatsingka America Inc. The agreement was signed on 01 July 2007 in New York, the enterprise value for the transaction is US$ 75 MM.
Divatex is among the top three distributors of bed linen products in the US.

As Divatex is a large distributor of bed linen products, there will be significant synergies for sourcing requirements from the new US$ 100 MM bed linen facility of Himatsingka at the Hassan Special Economic Zone in Karnataka. The facility has commenced trial production and is likely to commence commercial production in July 2007

India IPO Reviews and Updates

HDIL – Review and Recommendation

July 3, 20073 min read

Housing Development and Infrastructure (HDIL), part of the Wadhwan group develops real estate mainly in the Mumbai Metropolitan Region. Since its incorporation in 1996, the company has developed 23 projects covering approximately 11 million square feet of saleable area, including about 5.7 million square feet of land sold to other builders after the development. It also have constructed an additional two million square feet of rehabilitation housing area under the slum rehabilitation schemes. Dewan Housing Finance Corporation, a listed company is part of the promoter group.

HDIL is coming out with an IPO to fund acquisition of land or land development rights for its ongoing and planned projects. The price band is Rs 430- Rs 500.

HDIL has land reserves of approximately 112.1 million square feet of saleable area to be developed through 32 ongoing or planned projects. The company has 21 ongoing projects under construction and development, aggregating to approximately 45.5 million square feet of saleable area, and has 11 planned projects aggregating approximately 66.6 million square feet of saleable area. Of the land reserves, about 73.4% is actually owned by the company; and 15.7% of it is to be acquired under memorandum of understanding (MoU) and agreements.

Advances from customers are Rs 512.1 crore end March 2007, representing amounts that have been received from customers but not booked by the company as sales. As and when the projects are completed, this amount will percolate to the top line. This represents 43% of the reported FY 2007 revenue. There was an inventory of Rs 1324.48 crore (approximately 98% constitutes work in progress) end March 2007.

On the flip side:
Of the total land bank, 82% is in Mumbai Metropolitan Region, with a significant proportion in the Vasai-Virar region and in residential projects. The currently benchmark rates in Vasai-Virar region are in the range of only Rs 1000-1800 per square feet. In the year ending March 2007, 69% of reported revenue was derived from selling of development rights/floor space index (FSI).

Valuation:
Knight Frank had valued HDIL’s per share value at Rs 984. Cushman & Wakefield has valued per share value at Rs 1028. These valuations are six months old and the real-estate market condition has changed after that.

Consolidated FY 2007 EPS on post-issue equity, assuming green shoe option is exercised, works out to Rs 25.3. At the offer price band of Rs 430 – Rs 500, the P/E range is 17-19.8, respectively. Comparable companies location-wise (focused on Mumbai) are: Akruti Nirman (mainly into slum rehabilitation) and Orbit Corporation (mainly into redeveloping projects) are trading at P/E of 31.5 and 16, respectively. However both these companies are much smaller compared with HDIL. Comparable listed player in terms of size, Parsvnath Developers (with development rights of approximately 151 million square feet), is currently trading at 22 times its FY 2007 earning.

Recommendation:
Investors willing to hold for long term / with some risk appetite should apply as their will be listing gains for sure.

Real Estate Major – DLF will list on July-5th on the bourse.

Economy, Markets and Macro Views

IDFC scales record high on fund raising plan

July 3, 20071 min read

Infrastructure Development Finance Company (IDFC) is planning to shortly raise about $500 million through a qualified institutional placement.

Earlier on 25 April 2007, the board of directors of the company had approved a plan to raise capital through issue of equity or quasi-equity instruments up to $ 500 million subject to the approval of the shareholders.

The scrip hit a high of Rs 135.80 today, which is a lifetime high for the scrip. It hit a low of Rs 132.2 so far during the day. It had touched a 52 week low of Rs 43.35 on 24 July 2006.

Infrastructure Development Finance Company (IDFC) scrip had declined 16.07% over the last one month to 2 July 2007 compared to the Sensex’s return of 0.64%. The scrip outperformed the market over the past quarter, gaining 71.17% compared to the Sensex’s rise of 16.16%.

Equity Research

Buy Maruti Udyog – Citi

July 2, 20071 min read

Citigroup Research just a while ago recommended a BUY on Maruti Udyog Ltd with a price target of Rs 945.

Domestic sales rose c26% YoY, buoyed by the sharp growth in the key sub-compact segment. The company sold 59,917 vehicles in June an increase of 0.9% over May-07. Maruti is expected to do well for the rest of the year. Citi rates the stock as a Low Risk BUY. 12-month target price of Rs945 is based on 11x P/CEPS FY09E. The multiple compares favorably with the cash earnings CAGR of c16.3% over FY07E-09E.

Equity Research

Buy Mahindra and Mahindra – Citigroup

July 2, 20071 min read

Strong UV sales (+34% YoY), offset weak growth within the tractor segment. UV sales across product segments were strong, with both Scorpio and non-Scorpio volumes up 32% and 35% respectively. Export initiatives within the auto sector continue – growth was strong at +89% YoY, albeit off a modest base.

The initial response to the Logan has been fairly positive – especially given that the Logan was launched in only 11 cities. Management plans to expand capacity from 90 vehicles/day to 180 vehicles / day over the next two months.

Citi maintains a BUY on Mahindra and Mahindra with a price target of Rs 1032 which is based on sum of parts valuation. M&M’s core business at Rs 543 / share. M&M’s listed subsidiaries (Rs402 / share), Auto component business (Rs57 /share) and M&M’s investments in other subsidiaries (including Mahindra Holidays at Rs30 /share).

Equity Research

LIC Housing Finance – Long Term Buy

July 2, 20073 min read

LIC Housing Finance (LICHFL) is one of the largest housing finance companies in India. It possesses one of the industry’s most extensive marketing networks in India and Dubai with thousands of direct sales agents.

LICHFL reported robust income from operations, with disbursals growing 23% and net interest margin (NIM) sustaining at 2.45% in the March 2007 quarter over the March 2006 quarter. The company more than doubled (up 115%) the profit after tax (PAT) to Rs 89.14 crore, supported mainly by the strong NII growth and net performing asset (NPA) recoveries, surpassing market expectation. It sanctioned Rs 2479 crore and disbursed Rs 1755 crore — a growth of 72% and 23%, respectively, in the quarter.

LICHFL sanctioned Rs 6105 crore and disbursed Rs 5121 crore in the year ended March 2007 — a growth of 19% & 5%, respectively, over FY 2006. The company’s total income increased 25%, Rs 1583.25 crore. Net profit was up 34% to Rs 279.14 crore in the year.

The gross NPA ratio stood at 2.58% end March 2007 as against 3.41% end March 2006. Net NPAs were 1.26% as against 1.80%. The company has declared a total dividend of 80% (including 50% interim dividend already paid). The outstanding mortgage portfolio was Rs 17563 crore end March 2007 as against Rs 14867 crore end March 2006 — a growth of 18%.

LICHFL has taken a number of growth initiatives. The company recently launched a fixed deposit scheme to raise resources from individual depositors. It has increased its corporate tie-ups with reputed organisations in the country for granting loans to their employees. The total business coming out of such tie-ups accounted for around 33% of the total retail business in FY 2007 — up from 25% in FY 2006.

LICHFL identified certain areas of priority in FY 2007. It has delivered on it to a considerable extent. The company has been able to reduce both the gross and net NPAs significantly. It had undertaken lots of efforts on marketing, resulting in encouraging sanction and disbursement numbers in the March 2007 quarter (Q4).

LICHFL has targeted loan disbursals of Rs 6000 crore in FY 2008 — a growth of 17%, compared with a growth of just 5% in FY 2007. In view of the strong performance achieved in the March 2007 quarter and the management’s confidence and marketing initiatives already taken, such ramp-up in disbursals is achievable. However, on a conservative basis, the company si expected to report EPS of Rs 36.1 in FY 2008.

LIC holds a 40.5% equity stake in the company. There are good chances of LIC exiting from the business in the long run as housing finance is not its core business, nor does it offer any significant synergy. Moreover, in the hands of any other focused and aggressive player, the company can grow much faster. There is also lots of interest in the housing finance business in India due to the enticing growth potential.

Considering this, the current price of Rs 200, which is near the FY 2007 book value of Rs 180 and gives FY 2008 forward P/E of just 5.5 and dividend yield of 4.4%, offers great value. BUY this stock for Long Term.

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