Description
It explains about Industry Trends of Indian realty sector, PEST Analysis of realty Industry, Competitor Analysis of HDIL, SWOT analysis, Company Description, General Information about HDIL it's Finance performance, SWOT analysis and Various Strategies employed by HDIL.
Industry Analysis
Indian Realty Sector India with its growing population has always been a leader in the service sector. This is also true with respect to the realty sector. However with the recent subprime mortgage crisis in the west an expectation of the slowdown in Indian Realty sector had been expected. However during the last fiscal year there has been a turn around and stabilization in the Realty Sector. Property markets in India began to exhibit signs of revival for a short while during this time. Reserve Bank of India’s decrease in the lending rates has also had an effect on the realty sector. The liquidity of the sector has increased and it has been comparatively easier to obtain loans for both construction companies and also consumers. On the other hand the rental values have also increased recently. However there has been a slowdown in major cities like Mumbai, Delhi, Bengaluru and others. There have been projects stalled due to the slow down and thousands of flats have been vacant. This was about the residential constructions. In the recent years there have been efforts made in order to make India a manufacturing economy. Hence there has been an increase in the construction of Special Economic Zones (SEZs) which has attracted a lot of foreign investment in this sector. The government has increased FDI from 51% to 100% in this sector. A complete market recovery is a very bleak picture as of now. Other than this there have been some reforms like the rationalization of property taxes in a number of states. The modification in the Rent Control Act has made the home owners more secured than before and hence renting of houses has increased. There has been repeal of Urban Land Ceiling Act with 9 states that have already repealed the act.
Global Realty Sector Many residential markets across the world are under considerable stress. The strain is more pronounced in Europe and recession hit neighbouring economies. With the increasing fiscal austerity measures and rising joblessness and tight credit conditions have sidelined the potential
buyers and hence the demand has largely reduced for the residential property. The real estate has cooled in Australia and to some extent in Canada. Euro zone countries like Ireland, Spain, France, and U.K. are all under huge stress. Out of which the Ireland and Spain have been worst hit where the housing prices have stumbled by 19% and 9% respectively. In China too real estate curbs are at a critical state. Fluctuations have appeared recently in the property market and land market. Although the overall picture has not changed, the complexities and instabilities have increased in the market. The government has not introduced new enforcements as they don’t consider it the right time since the markets have not gone that far. They are now just emphasizing the existing policies. Thus realty sector around the world is in trouble and the yields of the reality bonds have increased to the level of 20% to 25% in different countries around the world. The projects are stalled and are in need of funds in major cities around the world.
PEST Analysis Political Urban Land Ceiling Act was passed in 1976. But it has been taken up for reform in 9 states including Maharashtra. The main reason for the reforms is that it lacked clarity and gave too much discretionary powers to the state government for granting exemptions. Compensation provided for the acquired land was very little, which often led to lengthy litigation disputes. The entry of the vacant urban land into the land market was very difficult. Land prices in cities reached astronomical heights due to artificial scarcity of land created by ULCRA. Increased availability of land in the market will help in the generation of direct and indirect income and improve the productivity of the sector. If the housing supply will increase then it will help in mobilizing property tax. Property tax laws are important as an increase in that will affect the total income of the firm and also affect the customer transactions. Laws like the Land Acquisition Act of 2011 which makes it possible for the government to acquire a particular land to develop public properties easily would make it very difficult for the private developers to take up new projects. Economical Health of the economy plays a very important role in considering the economic factors affecting real estate factors. If the economy is growing and the income is on the rise then there will be a
great demand for the residential sector. If the middle class is growing and the lifestyle of people is changing the demand of residential areas will be increasing along with the uses of five star hotels and the entertainment sector. The RBI’s monetary policies also have a large effect. If the CRR and the repo rates are going to change there will be a change in the availability of the funds and the projects can take up pace thus improving the availability of the houses and letting the real estate market grow. Social The socio-economic situation of the society is also an important factor in considering the real estate market. It also depends on the geographical condition around you. If someone is in the rural areas then the demand will be more for residential properties and lesser for those related to offices and huge malls and townships. While in the urban lifestyle there is a scope of development of malls, entertainment houses, resorts and five star hotels. Also with the changing mentality of the masses there is a shift in demand of the different products available. For E.g. people would prefer houses with large areas for gardens or plants if they have an eco friendly mentality. If people have experienced some kind of a calamity like an earthquake then they would prefer the earthquake resistant houses for residential as well as official purposes. Technological Recently technology has been playing an important role even in the real estate sector. People now prefer more sophisticated houses than they did before. Technology can be used in order to complete the projects sooner and thus improve efficiency and also help the sector grow. This also improves the liquidity of the sector and hence also the quality of the outcome.
Competitor Analysis Considering the market capitalization Godrej Properties can be considered as a leading competitor for HDIL. It has a market capitalization of approximately Rs. 4000 crore. The company is more focused on residential, commercial, retail and IT sector. It does not concentrate on entertainment and hospitality like HDIL. The quality of work and the technology used are that similar to HDIL. Since its establishment in 1990 it has completed around 74 million square feet of work much lesser than 100 million in case of HDIL. The company has had partnership projects with different companies for projects in different cities of India. The company entered into a joint development agreement with Amco Batteries
Ltd for development of land measuring 20.1 acres located at Hebbal Village in Bengaluru in Jan 2004. Godrej Properties Ltd obtained two private limited companies in the year 2005-2006 namely Godrej Waterside Properties Pvt Ltd and Godrej Realty Ltd. In the year 2009, the company made a tie up with the Clinton Climate Initiative for their Godrej Garden City project in Ahmedabad. The company was listed on BSE and NSE in the year 2010. Dutch firm APG invested Rs. 770 crores to develop mid-income residential projects in tier I cities of India
SWOT Analysis Strength The main strength of the real estate is that it is the most basic sector and hence is indispensable. Real estate is a sector that has a great potential of growth in India. It is comparatively easier and less tedious to procure capital in this sector if enough capital is at one’s disposal as it is the most promising sector. Technology in this sector is well in place and also advanced to a large extent. With the improving economy people are in a much better position to invest in this sector directly by buying a house or an office or indirectly in bonds and debentures. Moreover there is no maturity in the real estate just like any other bonds. One can keep the property even for years together and sell it whenever he considers it appropriate seeing the market conditions. The whole industry is well set up and well structured with a proper and well organized and well managed business. Weakness For transactions in the private property market the cost of transactions are pretty high as compared to other investment classes. Also with some exceptions real estate requires some management. This requires property management to deal with the day-to-day operation of the property. Along with this it also requires strategic management in order to decide the long term market position. This makes it difficult for convincing the investor for making bigger investments. Purchases can be out of reach for many investors as there is a need for purchases to be made in a variety of geographical locations and across asset classes. There is a high amount of inefficiency in the market because the profits are not equitably distributed i.e. some people with information and expertise have a larger share of profits and those with less information have smaller profits. The liquidity in this sector except for bonds and those securities exchanged in the stock exchange is very low and it takes a considerable amount of time for the property to be sold.
Opportunities In a country like India where there are a huge number of slums there is a huge scope of rehabilitation and hence offers a huge opportunity for real estate sector. Since there are laws like the Urban Land Ceiling Act which are being considered for reforms which are all set to liberate a huge amount of urban land which will provide great boost to the industry. Also India is developing as a centre for tourism and hence there is going to be a demand for a number of hotels, resorts and hospitality. The plan for a huge number of SEZs has been taken up and hence provides a great opportunity for the construction sector. Threats Land Acquisition Act is a threat to the industry as it makes the availability of land difficult. This reduces the liquidity of the sector thus makes it difficult for sell of homes. There can be threats like an increase in the interest rates by the RBI which can not only make it difficult for the constructing firms to obtain capital thus affecting the whole sector. With the increase on the lending rates there will be a fear of more number of defaults and the monthly installments will increase drastically. There can be threats like gaining strength of competitive realty and reasons like a public sector factory coming up around the land or a dumping ground near the land to be developed. A natural calamity like earthquake or flood can act as a deterrent to the industry. The difficulty in obtaining raw materials and electric supply can act as a major and a basic threat to the constructing company.
Company Analysis
Introduction Housing Development & Infrastructure Limited is among the leading real estate companies in India. As of June 2012 it ranks fifth in India with a market capitalization of more than Rs.3500 crores. HDIL’s projects include residential complexes and townships, shopping malls, premium offices, multiplexes and others. HDIL also undertakes slum rehabilitation. HDIL group has completed more than 100 million sq.ft. of construction in all verticals of real estate and has rehabilitated around 30,000 families in last one decade. Most of the projects of HDIL are concentrated in and around Mumbai. HDIL has also diversified into energy, hospitality and the development of SEZs.
General Information HDIL was founded in 1962 and has its headquarters in Mumbai. HDIL Was incorporated on 25th July 1996. HDIL employs 1077 employees currently. HDIL was ranked as India’s fastest growing real estate company by Construction World-NICMAR in October 2007.The credit rating of HDIL is BBB+ currently. As of 30th march 2012 the company owns around 230 million sq. ft. of area. It has 22 ongoing projects including the India’s largest slum rehabilitation i.e. Mumbai International Airport Slum Rehabilitation. The following are among the top management in HDIL
Mr. Rakesh Kumar Wadhawan Mr. Sarang Wadhawan Mr. Waryam Singh Mr. Ashok Kumar Gupta
Executive Chairman Vice Chairman & Managing Director Director Director
The following are the subsidiaries of HDIL as of 31st March 2011. 1. Blue Star Realtors Private Limited; 2. BKC Developers Private Limited; 3. Excel Arcade Private Limited; 4. Guruashish Construction Private Limited;
5. HDIL Commercial Properties Private Limited (formerly known as HDIL Leisure Pvt. Ltd.) 6. HDIL Entertainment Private Limited; 7. Lashkaria Construction Private Limited; (w.e.f. 12th October,2010) 8. Mazda Estates Private Limited; 9. Privilege Power and Infrastructure Private Limited and 10. Ravijyot Finance and Leasing Private Limited HDIL Entertainment and HDIL Leisure are the two most important subsidiaries of HDIL. HDIL Entertainment is engaged in building multiplexes all around India under the name Broadway. While HDIL Leisure is into the hospitality business building world class five star hotels, resorts, service apartments etc.
HDIL was listed on NSE/BSE in July 2007. It has a huge no. of share holders. So it is of prime importance to study the share holding pattern of the whole company as a whole. The following table shows the share holding pattern for the Q4 2011-2012 Category of Share Holders Percentage of shares (%) A. Promoter and Promoter group 1.Indian a. Individual/HUF b. Bodies Corporate 2. Foreign 24.63 12.73 Nil
B. Public Shareholders 1.Institutions a. Mutual Funds/UTI b. Financial Institutions/Banks c. Insurance Companies d. Foreign Institutional Investors 2. Non-Institutions 0.08 0.12 0.08 36.03
a. Bodies Corporate b. Individuals c. Others
10.85 12.84 2.65
Total
100
Financial Performance The quarter wise consolidated performance of the company is as follows.
Q1 FY 2011-2012 Net consolidated profit was around Rs.189.43 crores. This was lower than the same period previous year by approximately 11.5%. The reason behind this decrease is the reduction in the booking of residential apartments in particular areas of Mumbai because of the increased rate of inflation during that period. Also there was a decrease of 11.37% considering the standalone profit of HDIL from Rs. 234.31 crores to Rs. 209.7 crores. Standalone cash as on 31/06/2011: Rs. 142 crores Standalone debt: Rs. 3915.97 crores Standalone debt/equity ratio: 0.40
Q2 FY 2011-2012 The net consolidated profit was around Rs.148.5crores less by 24% that the same period last year. The total revenue collected was Rs. 440 crores out of which around 17% came from the Industrial Park project. Consolidated Cash as on 30/09/2011: Rs. 217.85 Consolidated Net Debt- Rs. 3944.78 Consolidated Net Debt/Equity- 0.42
Q3FY 2011-2012 Net consolidated profit year on year decreased by 37%. However the quarter on quarter growth was 4.88%. One of the reasons for the quarter on quarter basis increase in the profit can be
considered as the sale of FSI. There was an increase of 0.35 fungible FSI thus helping it to sell the FSI easier. This has helped generate some revenue which has helped the company progress on the quarterly basis. The revenue generated by sale of FSI was around Rs. 333 crores that makes up the 79% of the total revenue.
Q4 FY 2011-2012 Consolidated profit increased by 70.33% considering year on year basis and by 102.54% considering quarter on quarter basis. One of the reasons can be considered as the reduction in debt during the last year by Rs.237 crores also the cash reserves have been almost double from the first quarter to the final quarter. Consolidated Cash as on 31/03/2012: Rs. 226.78 Consolidated Net Debt- Rs. 3855.53 Consolidated Net Debt/Equity- 0.37
SWOT Analysis For any firm SWOT analysis acts a very important tool in order to enhance its capabilities to the full extent. It also gives an idea as to what are the areas that the firm should concentrate in order to improve its products and services. So here is the SWOT analysis for HDIL.
Strength The biggest strength of HDIL is that it is among the top 5 real estate companies in India and has also been ranked as India’s fastest growing real estate company. So this has created a sort of positive sentiment among the consumers, investors and stake holders. Apart from constructing huge malls, office complexes and residential complexes HDIL has got a very important task of Mumbai International Airport Slum Rehabilitation. Besides the firm has huge land reserves around 230 million sq.ft and hence is not dependent on any third party or on government approval for construction. More than 14 million sq. ft. residential apartments have been sold as on 31st March 2012. The firm has 22 projects currently going on simultaneously all around India.
Weakness The major weakness of HDIL is that the number of employees employed by HDIL is limited to approximately 1000. So the total workforce is weak and hence it becomes difficult to carry out operations and management in a structured and planned manner. Moreover the technological advancements brought in by the company have been recent and hence the whole staff is still inexperienced with respect to the new technologies. There has been delay in approval of buildings made for rehabilitation for the Mumbai International Airport as HDIL has not been successful in convincing the SRA about the quality of the work that has been done. Hence HDIL has been deep in debt which reached almost Rs. 4000 crore during the last year. Hence the firm had to sell its land properties in order to fund its debt. Opportunities The real estate sector in India is slowly improving owing to the stable commodity prices and the various packages and relief in the laws that the government is providing. This has increased the liquidity in the sector. Also the slum rehabilitation Authority of India has entrusted India’s largest slum rehabilitation project to HDIL which can be an opportunity for more such large projects if the services maintained are efficient enough and also in time. Also now that the rate of inflation has just started decreasing and with the slight decrease in CRR and repo rates more and more banks are now ready to give home loans at a cheaper rate in order to revive growth. This is surely an opportunity for the firm to act swiftly and efficiently in order to improve upon its sales. Threats Though the situation in India is now not as bad as it is in Europe the position of India is still precarious. And hence there is always a threat of price rise in commodities like cement, steel and electricity which form the basic raw material of any construction. Such a situation would not only affect the expenditure of the company but also the sales as liquidity in the market reduces.
Strategies 1. Last year the rate of inflation was too high in India. Hence the reality sector experienced a slowdown. So HDIL decided to use other techniques to generate revenues. It sold FSI during the third quarter 2011-2012. This is a good technique considering the slowdown in the sector. The FSI would be an idle resource in case there are not enough projects going
on. This can easily generate a large amount of revenues as land and the building area are not that cheap a resource when we consider a city like Mumbai. 2. HDIL on recently sold away 2 acre plot to Adani Enterprises for Rs.900 crore. In similar other deals HDIL sold a 5mn sq.ft. plot in Virar for Rs.650 crore last September and a 7 acre plot on the Andheri-Kurla road for Rs.800 crore. HDIL has been under a lot of pressure of debt. Its debt has already crossed the Rs.4000 crore mark. So in order to release some of this pressure these land dealings can be considered as a good step. This is also a boon for HDIL since there has been a huge amount of delay in getting approvals for the buildings built for the Mumbai International Airport Slum Rehabilitation. It received approval for78 buildings after 1.5 years of wait. Such a long period of time taken had already increased its debt to dangerous levels. 3. In a competitive market like the real estate technological advancement in construction plays a very important role. Since now-a-days people demand for more luxurious and especially safe homes. Safe with respect to earthquakes and also having long life. So HDIL has undertaken the task of R&D in the construction business. Some of the R&D activities are as follows: ? ? ? ? ? ? ? ? Substitution of Diaphragm wall with sheet piling as shoring options Study, Analysis and use of composite structure in place of conventional structure Study, Analysis and use of various shuttering patterns for economy and conservation time Optimization of resources and their recycling for further use Use of environment friendly materials and developing green building concept Analysis and study of trade off among various services for optimization Profiled steel sheeting is being used for economic design of slab. Speed of construction, cost and quality improved massively by using Western Forms Systems especially for mass housing projects like affordable housing. Using such improvised and advanced technology not only increases speed but also reduces the labour cost to a lot extent and improves the efficiency of work. If the market is slowing down then there is always need for value proposition and having a Unique Selling Proposition (USP) using the best of technology is always recommended.
Along with this energy efficiency also plays an important role. Using green and reusable materials increases the intangible value of the construction. Use of fly ash bricks and blast furnace slag admixture which make the steel corrosion resistant is a greener way of getting the same quality of output. 4. Apart from these using technology in business operations also makes a difference. It creates a positive sense of attitude both among customers and employees. It acts as a morale booster. So to facilitate improved efficiency in Business Operations, SAP Business ERP system is being used for integrating all Business Functions of the Company from Planning, Execution, Monitoring and Control of the Projects. In addition to the extensive use of many popular CAD tools like AUTOCAD for 2D design and drafting, STADDPRO and ETABS for structural analysis, 3D Modelling tools like Revit etc.; a constant exploration and evaluation of various technical software 5D tools for integrating Project Management Lifecycle is being carried out by HDIL. 5. HDIL has started a joint venture with Conclave Housing and Hospitality ltd to built the Imperial County-a township on the Yamuna expressway joining the two important cities Agra and Delhi. HDIL is currently new to the hospitality business and so having an alliance with someone experienced benefits the overall project. Besides that part of India has not witnessed such a township before. So it is a kind of a novelty factor for that particular geographical area. 6. The HDIL did not pay any Dividend for the year 2011-2012. This was a well thought step as already the company is in debt and more over RBI has implemented policy that restricts the investments in the real estate sector thus affecting the availability of liquidity in the business. Such measures are often required as the first priority is to save the firm from a collateral loss of reserves which may be very useful in times of a slow down or a sort of a recession.
doc_137558631.docx
It explains about Industry Trends of Indian realty sector, PEST Analysis of realty Industry, Competitor Analysis of HDIL, SWOT analysis, Company Description, General Information about HDIL it's Finance performance, SWOT analysis and Various Strategies employed by HDIL.
Industry Analysis
Indian Realty Sector India with its growing population has always been a leader in the service sector. This is also true with respect to the realty sector. However with the recent subprime mortgage crisis in the west an expectation of the slowdown in Indian Realty sector had been expected. However during the last fiscal year there has been a turn around and stabilization in the Realty Sector. Property markets in India began to exhibit signs of revival for a short while during this time. Reserve Bank of India’s decrease in the lending rates has also had an effect on the realty sector. The liquidity of the sector has increased and it has been comparatively easier to obtain loans for both construction companies and also consumers. On the other hand the rental values have also increased recently. However there has been a slowdown in major cities like Mumbai, Delhi, Bengaluru and others. There have been projects stalled due to the slow down and thousands of flats have been vacant. This was about the residential constructions. In the recent years there have been efforts made in order to make India a manufacturing economy. Hence there has been an increase in the construction of Special Economic Zones (SEZs) which has attracted a lot of foreign investment in this sector. The government has increased FDI from 51% to 100% in this sector. A complete market recovery is a very bleak picture as of now. Other than this there have been some reforms like the rationalization of property taxes in a number of states. The modification in the Rent Control Act has made the home owners more secured than before and hence renting of houses has increased. There has been repeal of Urban Land Ceiling Act with 9 states that have already repealed the act.
Global Realty Sector Many residential markets across the world are under considerable stress. The strain is more pronounced in Europe and recession hit neighbouring economies. With the increasing fiscal austerity measures and rising joblessness and tight credit conditions have sidelined the potential
buyers and hence the demand has largely reduced for the residential property. The real estate has cooled in Australia and to some extent in Canada. Euro zone countries like Ireland, Spain, France, and U.K. are all under huge stress. Out of which the Ireland and Spain have been worst hit where the housing prices have stumbled by 19% and 9% respectively. In China too real estate curbs are at a critical state. Fluctuations have appeared recently in the property market and land market. Although the overall picture has not changed, the complexities and instabilities have increased in the market. The government has not introduced new enforcements as they don’t consider it the right time since the markets have not gone that far. They are now just emphasizing the existing policies. Thus realty sector around the world is in trouble and the yields of the reality bonds have increased to the level of 20% to 25% in different countries around the world. The projects are stalled and are in need of funds in major cities around the world.
PEST Analysis Political Urban Land Ceiling Act was passed in 1976. But it has been taken up for reform in 9 states including Maharashtra. The main reason for the reforms is that it lacked clarity and gave too much discretionary powers to the state government for granting exemptions. Compensation provided for the acquired land was very little, which often led to lengthy litigation disputes. The entry of the vacant urban land into the land market was very difficult. Land prices in cities reached astronomical heights due to artificial scarcity of land created by ULCRA. Increased availability of land in the market will help in the generation of direct and indirect income and improve the productivity of the sector. If the housing supply will increase then it will help in mobilizing property tax. Property tax laws are important as an increase in that will affect the total income of the firm and also affect the customer transactions. Laws like the Land Acquisition Act of 2011 which makes it possible for the government to acquire a particular land to develop public properties easily would make it very difficult for the private developers to take up new projects. Economical Health of the economy plays a very important role in considering the economic factors affecting real estate factors. If the economy is growing and the income is on the rise then there will be a
great demand for the residential sector. If the middle class is growing and the lifestyle of people is changing the demand of residential areas will be increasing along with the uses of five star hotels and the entertainment sector. The RBI’s monetary policies also have a large effect. If the CRR and the repo rates are going to change there will be a change in the availability of the funds and the projects can take up pace thus improving the availability of the houses and letting the real estate market grow. Social The socio-economic situation of the society is also an important factor in considering the real estate market. It also depends on the geographical condition around you. If someone is in the rural areas then the demand will be more for residential properties and lesser for those related to offices and huge malls and townships. While in the urban lifestyle there is a scope of development of malls, entertainment houses, resorts and five star hotels. Also with the changing mentality of the masses there is a shift in demand of the different products available. For E.g. people would prefer houses with large areas for gardens or plants if they have an eco friendly mentality. If people have experienced some kind of a calamity like an earthquake then they would prefer the earthquake resistant houses for residential as well as official purposes. Technological Recently technology has been playing an important role even in the real estate sector. People now prefer more sophisticated houses than they did before. Technology can be used in order to complete the projects sooner and thus improve efficiency and also help the sector grow. This also improves the liquidity of the sector and hence also the quality of the outcome.
Competitor Analysis Considering the market capitalization Godrej Properties can be considered as a leading competitor for HDIL. It has a market capitalization of approximately Rs. 4000 crore. The company is more focused on residential, commercial, retail and IT sector. It does not concentrate on entertainment and hospitality like HDIL. The quality of work and the technology used are that similar to HDIL. Since its establishment in 1990 it has completed around 74 million square feet of work much lesser than 100 million in case of HDIL. The company has had partnership projects with different companies for projects in different cities of India. The company entered into a joint development agreement with Amco Batteries
Ltd for development of land measuring 20.1 acres located at Hebbal Village in Bengaluru in Jan 2004. Godrej Properties Ltd obtained two private limited companies in the year 2005-2006 namely Godrej Waterside Properties Pvt Ltd and Godrej Realty Ltd. In the year 2009, the company made a tie up with the Clinton Climate Initiative for their Godrej Garden City project in Ahmedabad. The company was listed on BSE and NSE in the year 2010. Dutch firm APG invested Rs. 770 crores to develop mid-income residential projects in tier I cities of India
SWOT Analysis Strength The main strength of the real estate is that it is the most basic sector and hence is indispensable. Real estate is a sector that has a great potential of growth in India. It is comparatively easier and less tedious to procure capital in this sector if enough capital is at one’s disposal as it is the most promising sector. Technology in this sector is well in place and also advanced to a large extent. With the improving economy people are in a much better position to invest in this sector directly by buying a house or an office or indirectly in bonds and debentures. Moreover there is no maturity in the real estate just like any other bonds. One can keep the property even for years together and sell it whenever he considers it appropriate seeing the market conditions. The whole industry is well set up and well structured with a proper and well organized and well managed business. Weakness For transactions in the private property market the cost of transactions are pretty high as compared to other investment classes. Also with some exceptions real estate requires some management. This requires property management to deal with the day-to-day operation of the property. Along with this it also requires strategic management in order to decide the long term market position. This makes it difficult for convincing the investor for making bigger investments. Purchases can be out of reach for many investors as there is a need for purchases to be made in a variety of geographical locations and across asset classes. There is a high amount of inefficiency in the market because the profits are not equitably distributed i.e. some people with information and expertise have a larger share of profits and those with less information have smaller profits. The liquidity in this sector except for bonds and those securities exchanged in the stock exchange is very low and it takes a considerable amount of time for the property to be sold.
Opportunities In a country like India where there are a huge number of slums there is a huge scope of rehabilitation and hence offers a huge opportunity for real estate sector. Since there are laws like the Urban Land Ceiling Act which are being considered for reforms which are all set to liberate a huge amount of urban land which will provide great boost to the industry. Also India is developing as a centre for tourism and hence there is going to be a demand for a number of hotels, resorts and hospitality. The plan for a huge number of SEZs has been taken up and hence provides a great opportunity for the construction sector. Threats Land Acquisition Act is a threat to the industry as it makes the availability of land difficult. This reduces the liquidity of the sector thus makes it difficult for sell of homes. There can be threats like an increase in the interest rates by the RBI which can not only make it difficult for the constructing firms to obtain capital thus affecting the whole sector. With the increase on the lending rates there will be a fear of more number of defaults and the monthly installments will increase drastically. There can be threats like gaining strength of competitive realty and reasons like a public sector factory coming up around the land or a dumping ground near the land to be developed. A natural calamity like earthquake or flood can act as a deterrent to the industry. The difficulty in obtaining raw materials and electric supply can act as a major and a basic threat to the constructing company.
Company Analysis
Introduction Housing Development & Infrastructure Limited is among the leading real estate companies in India. As of June 2012 it ranks fifth in India with a market capitalization of more than Rs.3500 crores. HDIL’s projects include residential complexes and townships, shopping malls, premium offices, multiplexes and others. HDIL also undertakes slum rehabilitation. HDIL group has completed more than 100 million sq.ft. of construction in all verticals of real estate and has rehabilitated around 30,000 families in last one decade. Most of the projects of HDIL are concentrated in and around Mumbai. HDIL has also diversified into energy, hospitality and the development of SEZs.
General Information HDIL was founded in 1962 and has its headquarters in Mumbai. HDIL Was incorporated on 25th July 1996. HDIL employs 1077 employees currently. HDIL was ranked as India’s fastest growing real estate company by Construction World-NICMAR in October 2007.The credit rating of HDIL is BBB+ currently. As of 30th march 2012 the company owns around 230 million sq. ft. of area. It has 22 ongoing projects including the India’s largest slum rehabilitation i.e. Mumbai International Airport Slum Rehabilitation. The following are among the top management in HDIL
Mr. Rakesh Kumar Wadhawan Mr. Sarang Wadhawan Mr. Waryam Singh Mr. Ashok Kumar Gupta
Executive Chairman Vice Chairman & Managing Director Director Director
The following are the subsidiaries of HDIL as of 31st March 2011. 1. Blue Star Realtors Private Limited; 2. BKC Developers Private Limited; 3. Excel Arcade Private Limited; 4. Guruashish Construction Private Limited;
5. HDIL Commercial Properties Private Limited (formerly known as HDIL Leisure Pvt. Ltd.) 6. HDIL Entertainment Private Limited; 7. Lashkaria Construction Private Limited; (w.e.f. 12th October,2010) 8. Mazda Estates Private Limited; 9. Privilege Power and Infrastructure Private Limited and 10. Ravijyot Finance and Leasing Private Limited HDIL Entertainment and HDIL Leisure are the two most important subsidiaries of HDIL. HDIL Entertainment is engaged in building multiplexes all around India under the name Broadway. While HDIL Leisure is into the hospitality business building world class five star hotels, resorts, service apartments etc.
HDIL was listed on NSE/BSE in July 2007. It has a huge no. of share holders. So it is of prime importance to study the share holding pattern of the whole company as a whole. The following table shows the share holding pattern for the Q4 2011-2012 Category of Share Holders Percentage of shares (%) A. Promoter and Promoter group 1.Indian a. Individual/HUF b. Bodies Corporate 2. Foreign 24.63 12.73 Nil
B. Public Shareholders 1.Institutions a. Mutual Funds/UTI b. Financial Institutions/Banks c. Insurance Companies d. Foreign Institutional Investors 2. Non-Institutions 0.08 0.12 0.08 36.03
a. Bodies Corporate b. Individuals c. Others
10.85 12.84 2.65
Total
100
Financial Performance The quarter wise consolidated performance of the company is as follows.
Q1 FY 2011-2012 Net consolidated profit was around Rs.189.43 crores. This was lower than the same period previous year by approximately 11.5%. The reason behind this decrease is the reduction in the booking of residential apartments in particular areas of Mumbai because of the increased rate of inflation during that period. Also there was a decrease of 11.37% considering the standalone profit of HDIL from Rs. 234.31 crores to Rs. 209.7 crores. Standalone cash as on 31/06/2011: Rs. 142 crores Standalone debt: Rs. 3915.97 crores Standalone debt/equity ratio: 0.40
Q2 FY 2011-2012 The net consolidated profit was around Rs.148.5crores less by 24% that the same period last year. The total revenue collected was Rs. 440 crores out of which around 17% came from the Industrial Park project. Consolidated Cash as on 30/09/2011: Rs. 217.85 Consolidated Net Debt- Rs. 3944.78 Consolidated Net Debt/Equity- 0.42
Q3FY 2011-2012 Net consolidated profit year on year decreased by 37%. However the quarter on quarter growth was 4.88%. One of the reasons for the quarter on quarter basis increase in the profit can be
considered as the sale of FSI. There was an increase of 0.35 fungible FSI thus helping it to sell the FSI easier. This has helped generate some revenue which has helped the company progress on the quarterly basis. The revenue generated by sale of FSI was around Rs. 333 crores that makes up the 79% of the total revenue.
Q4 FY 2011-2012 Consolidated profit increased by 70.33% considering year on year basis and by 102.54% considering quarter on quarter basis. One of the reasons can be considered as the reduction in debt during the last year by Rs.237 crores also the cash reserves have been almost double from the first quarter to the final quarter. Consolidated Cash as on 31/03/2012: Rs. 226.78 Consolidated Net Debt- Rs. 3855.53 Consolidated Net Debt/Equity- 0.37
SWOT Analysis For any firm SWOT analysis acts a very important tool in order to enhance its capabilities to the full extent. It also gives an idea as to what are the areas that the firm should concentrate in order to improve its products and services. So here is the SWOT analysis for HDIL.
Strength The biggest strength of HDIL is that it is among the top 5 real estate companies in India and has also been ranked as India’s fastest growing real estate company. So this has created a sort of positive sentiment among the consumers, investors and stake holders. Apart from constructing huge malls, office complexes and residential complexes HDIL has got a very important task of Mumbai International Airport Slum Rehabilitation. Besides the firm has huge land reserves around 230 million sq.ft and hence is not dependent on any third party or on government approval for construction. More than 14 million sq. ft. residential apartments have been sold as on 31st March 2012. The firm has 22 projects currently going on simultaneously all around India.
Weakness The major weakness of HDIL is that the number of employees employed by HDIL is limited to approximately 1000. So the total workforce is weak and hence it becomes difficult to carry out operations and management in a structured and planned manner. Moreover the technological advancements brought in by the company have been recent and hence the whole staff is still inexperienced with respect to the new technologies. There has been delay in approval of buildings made for rehabilitation for the Mumbai International Airport as HDIL has not been successful in convincing the SRA about the quality of the work that has been done. Hence HDIL has been deep in debt which reached almost Rs. 4000 crore during the last year. Hence the firm had to sell its land properties in order to fund its debt. Opportunities The real estate sector in India is slowly improving owing to the stable commodity prices and the various packages and relief in the laws that the government is providing. This has increased the liquidity in the sector. Also the slum rehabilitation Authority of India has entrusted India’s largest slum rehabilitation project to HDIL which can be an opportunity for more such large projects if the services maintained are efficient enough and also in time. Also now that the rate of inflation has just started decreasing and with the slight decrease in CRR and repo rates more and more banks are now ready to give home loans at a cheaper rate in order to revive growth. This is surely an opportunity for the firm to act swiftly and efficiently in order to improve upon its sales. Threats Though the situation in India is now not as bad as it is in Europe the position of India is still precarious. And hence there is always a threat of price rise in commodities like cement, steel and electricity which form the basic raw material of any construction. Such a situation would not only affect the expenditure of the company but also the sales as liquidity in the market reduces.
Strategies 1. Last year the rate of inflation was too high in India. Hence the reality sector experienced a slowdown. So HDIL decided to use other techniques to generate revenues. It sold FSI during the third quarter 2011-2012. This is a good technique considering the slowdown in the sector. The FSI would be an idle resource in case there are not enough projects going
on. This can easily generate a large amount of revenues as land and the building area are not that cheap a resource when we consider a city like Mumbai. 2. HDIL on recently sold away 2 acre plot to Adani Enterprises for Rs.900 crore. In similar other deals HDIL sold a 5mn sq.ft. plot in Virar for Rs.650 crore last September and a 7 acre plot on the Andheri-Kurla road for Rs.800 crore. HDIL has been under a lot of pressure of debt. Its debt has already crossed the Rs.4000 crore mark. So in order to release some of this pressure these land dealings can be considered as a good step. This is also a boon for HDIL since there has been a huge amount of delay in getting approvals for the buildings built for the Mumbai International Airport Slum Rehabilitation. It received approval for78 buildings after 1.5 years of wait. Such a long period of time taken had already increased its debt to dangerous levels. 3. In a competitive market like the real estate technological advancement in construction plays a very important role. Since now-a-days people demand for more luxurious and especially safe homes. Safe with respect to earthquakes and also having long life. So HDIL has undertaken the task of R&D in the construction business. Some of the R&D activities are as follows: ? ? ? ? ? ? ? ? Substitution of Diaphragm wall with sheet piling as shoring options Study, Analysis and use of composite structure in place of conventional structure Study, Analysis and use of various shuttering patterns for economy and conservation time Optimization of resources and their recycling for further use Use of environment friendly materials and developing green building concept Analysis and study of trade off among various services for optimization Profiled steel sheeting is being used for economic design of slab. Speed of construction, cost and quality improved massively by using Western Forms Systems especially for mass housing projects like affordable housing. Using such improvised and advanced technology not only increases speed but also reduces the labour cost to a lot extent and improves the efficiency of work. If the market is slowing down then there is always need for value proposition and having a Unique Selling Proposition (USP) using the best of technology is always recommended.
Along with this energy efficiency also plays an important role. Using green and reusable materials increases the intangible value of the construction. Use of fly ash bricks and blast furnace slag admixture which make the steel corrosion resistant is a greener way of getting the same quality of output. 4. Apart from these using technology in business operations also makes a difference. It creates a positive sense of attitude both among customers and employees. It acts as a morale booster. So to facilitate improved efficiency in Business Operations, SAP Business ERP system is being used for integrating all Business Functions of the Company from Planning, Execution, Monitoring and Control of the Projects. In addition to the extensive use of many popular CAD tools like AUTOCAD for 2D design and drafting, STADDPRO and ETABS for structural analysis, 3D Modelling tools like Revit etc.; a constant exploration and evaluation of various technical software 5D tools for integrating Project Management Lifecycle is being carried out by HDIL. 5. HDIL has started a joint venture with Conclave Housing and Hospitality ltd to built the Imperial County-a township on the Yamuna expressway joining the two important cities Agra and Delhi. HDIL is currently new to the hospitality business and so having an alliance with someone experienced benefits the overall project. Besides that part of India has not witnessed such a township before. So it is a kind of a novelty factor for that particular geographical area. 6. The HDIL did not pay any Dividend for the year 2011-2012. This was a well thought step as already the company is in debt and more over RBI has implemented policy that restricts the investments in the real estate sector thus affecting the availability of liquidity in the business. Such measures are often required as the first priority is to save the firm from a collateral loss of reserves which may be very useful in times of a slow down or a sort of a recession.
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