Asia Pacific Equity Research

21 June 2012

Housing Development and Infrastructure Ltd. (HDIL)

Traction on approvals should aid collections
Our Overweight thesis on HDIL has been predicated on two primary assumptions i.e. 1. Approvals scenario in Mumbai should improve over FY13, which then should aid collections from presold FSI and help new launches and 2. Expectations of visible action on the airport project by the government by end of the year and ahead of 2014 elections. Over the last week, approval deadlock finally seems to have broken with about 78 buildings getting approvals after a gap of more than a year. Whilst airport resettlement continues to be a contentious issue, in the current week a rather high profile meeting of the Chief Minister/Airport Ministry seems to suggest that a resolution could come by the end of the year. At CMP of Rs73, we think HDIL's stock price not only writes down airport project to zero but also implies significant write down on its rather cheap cost Mumbai land bank. We think the risk reward remains favorable. Maintain our Mar13 PT of Rs200. Building approvals start to come through- Over the last one week, 78 buildings (of which 38 were new proposals) were cleared by government authorities after a gap of almost 1.5 years. This early signs of revival in approvals, in our view, also sets the stage for some price correction by developers who are starved for cash flow. This should however help HDIL by a) aiding cash collections from pre sold FSI to developers who can then in turn launch their projects and B) Also aid cash flows from pre sold projects which are stuck and help new launches/ land sales. Policy action on Airport project?- This week a high profile committee comprising the Chief Minister and Aviation Minister met to review the airport project (source: TOI). The government seems to have constituted a task force to implement the project but unfortunately no timeline has been divulged. With close to 18K tenements getting ready, we think an action could likely come ahead of 2014 elections. Also given land acquisition delays around the second Navi Mumbai airport, resolving current airport will be important for the state government.

Overweight
HDIL.BO, HDIL IN Price: Rs73.35 Price Target: Rs200.00

India India Property Saurabh Kumar

AC

(91-22) 6157-3590 saurabh.s.kumar@jpmorgan.com

Gunjan Prithyani
(91-22) 6157-3593 gunjan.x.prithyani@jpmorgan.com J.P. Morgan India Private Limited
Price Performance
160 Rs 120 80 40
Jun-11 Sep-11 Dec-11 Mar-12 Jun-12

HDIL.BO share price (Rs) BSE30 (rebased)

Abs Rel

YTD 37.5% 28.2%

1m 16.1% 11.7%

3m -21.8% -19.4%

12m -54.0% -50.5%

Valuations at 0.3x P/B are discounting significant negatives, in our view. At current price, the stock is not only writing down the airport project to zero but is also imputing significant discount to physical market valuations for its Mumbai city centric projects and mid income land holdings in distant suburbs, which is unwarranted in our view.
Housing Development and Infrastructure Ltd. (HDIL) (Reuters: HDIL.BO, Bloomberg: HDIL IN) Rs in mn, year-end Mar FY10A FY11A FY12A FY13E FY14E Revenue (Rs mn) 15,021 18,500 20,002 30,491 38,315 Net Profit (Rs mn) 5,722 8,274 8,168 10,129 10,365 EPS (Rs) 16.6 19.9 19.5 24.2 24.7 Net debt to Equity 47.0% 43.1% 37.4% 26.5% 25.1% EPS growth (%) -31.9% 20.2% -2.2% 24.0% 2.3% ROE 10.0% 10.0% 8.3% 9.4% 8.8% P/E (x) 4.4 3.7 3.8 3.0 3.0 P/BV (x) 0.4 0.3 0.3 0.3 0.2
Source: Company data, Bloomberg, J.P. Morgan estimates.

Company Data Shares O/S (mn) Market cap ($ mn) Price (Rs) Date Of Price 3mth Avg daily volume 3M - Average daily Value (Rs mn) Average 3m Daily Turnover ($ mn) BSE30 Exchange Rate

419 554 73.35 20 Jun 12 24.09 1,882 35.27 16,860 55.50

See page 6 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. www.morganmarkets.com

Saurabh Kumar (91-22) 6157-3590 saurabh.s.kumar@jpmorgan.com

Asia Pacific Equity Research 21 June 2012

Company Description

Valuation and EPS sensitivity metrics

Price growth post FY10 Impact of each 5% point change Cap rate assumption Impact of each 1% point change

NAV impact (%) 15% 4%

EPS impact (%) 9% 8%

HDIL is one of the leading real estate developers and slum rehabilitation player in the Mumbai Metropolitan Region (MMR). HDIL has land reserves of ~190msf (including the Airport project), of which 88msf is under construction. Since incorporation in 1996, the company has delivered over 26 projects covering 19.3msf of saleable area (including 12.7msf of land development) and has completed rehabilitation projects covering 30,000 families, which implies a market share of 40%.

Source: J.P. Morgan estimates

Price target and valuation analysis

Maintain OW with Mar-13 SOTP based PT of Rs200. This implies a P/B of 0.8x (see details on next page). Key downside risks are (a) Further delays in cash realizations from pre sales and FSI sales already achieved given debt repayment issues; (b) Persistent weakness in Mumbai residential markets; (c) Delay in formal notification of eligibility norms for airport project

NAV break up chart

Virar 33% Others Mumbai 57% 7% Airport 3%

Source: J.P. Morgan estimates

EPS: J.P. Morgan vs. consensus

J. P. Morgan FY12E FY13E 24.2 24.7 Consensus 20.9 24.1
.

Source: Bloomberg, J.P. Morgan estimates

Saurabh Kumar (91-22) 6157-3590 saurabh.s.kumar@jpmorgan.com

Asia Pacific Equity Research 21 June 2012

Table 1: HDIL - Book Value and SOTP valuation

Rs B Total Assets Mumbai Projects Airport Project Virar Vasai

Book Value (Rs B) 140 42 40 10

JPM Valuation (Rs B)

Implied P/B (x) 1.5 0.5 4.0

JPM Value (per share)

JPM Comments

63 21 40

150 51 95

Debtor from FSI sales 6 Net working capital Other current Liabilities Others Kochi/Hyderabad etc SEZ land in Virar Vasai Interest Capitalized Remaining assets Total Net Debt Equity Value Per share (Rs) (1) (13) 42 3 10 10 20 126 3 (1) (13) 12 3 10 126 (38) 84 202 0.3 1.0 0.5 1.0 0.5 7 (3) (31) 28 6 22 296 (94) 200

~25msf of projects in Mumbai suburbs. Valued at 1.5x P/B, in line with our DCF estimate for the projects Based on 50% probability for the project Total land holding of >100msf+ in distant Mumbai suburbs (Virar Vasai/Palghar etc). Historical land on books at <Rs100psf. Valued at Rs400psf. FSI sales being done at Rs800-1000psf. Pending debtors on BS marked down by 50%. These are expected to convert into cash by FY13 end as launches for developers improve Creditors and tax provisions Valued at 1x P/B. 25msf of projects in Kochi/Hyderabad. Company looking at selling these assets Marked down to zero given no progress on these SEZ projects Written down completely Other SRS/hotel projects. Marked down by 50% Net Debt

Source: Company reports and J.P. Morgan estimates

Saurabh Kumar (91-22) 6157-3590 saurabh.s.kumar@jpmorgan.com

Asia Pacific Equity Research 21 June 2012

Housing Development and Infrastructure Ltd. (HDIL): Summary of Financials

Profit and Loss Statement Rs in millions, year end Mar Revenues % change Y/Y EBIT % change Y/Y EBIT margin (%) Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Core net profit % change Y/Y Shares outstanding EPS (reported) % change Y/Y Balance sheet Rs in millions, year end Mar Cash and cash equivalents Accounts receivable Inventories Others Current assets Investments Net fixed assets Total Assets FY11 18,500 23.2% 10,203 42.2% 55.2% -337 9,865 39.9% -1,591 16.1% 8,274 44.6% 8,274 44.6% 415 19.93 20.2% FY11 2,297 3,611 114,152 35,454 155,514 520 5,395 161,429 FY12 20,002 8.1% 8,616 NM 43.1% -157 8,459 -14.3% -291 3.4% 8,168 -1.3% 8,168 -1.3% 419 19.49 (2.2%) FY12 2,268 8,688 116,717 40,367 168,040 580 4,320 172,940 FY13E 30,491 52.4% 14,650 70.0% 48.1% -180 14,470 71.1% -4,341 30.0% 10,129 24.0% 10,129 24.0% 419 24.17 24.0% FY13E 7,897 2,908 124,516 40,867 176,188 580 5,298 182,066 FY14E 38,315 25.7% 14,852 1.4% 38.8% -45 14,807 2.3% -4,442 30.0% 10,365 2.3% 10,365 2.3% 419 24.74 2.3% Cash flow statement Rs in millions, year end Mar EBIT Depr. & amortization Change in working capital Others Cash flow from operations Capex Disposal/(purchase) Net Interest Free cash flow Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Beginning cash Ending cash Ratio Analysis Rs in millions, year end Mar EBIT Margin Operating margin Net margin FY11 10,203 838 -34,515 -25,142 0 -25,142 13,356 2,181 3,331 -345 7,918 2,297 FY11 55.2% 44.7% 23.2% 44.6% 20.2% 32.72 32.8% 43.1% 0.13 2.14 10.0% 8.2% FY12 8,616 858 -8,608 -882 -60 -942 4,532 -2,378 -1,846 -348 2,297 2,268 FY12 43.1% 40.8% 8.1% -1.3% (2.2%) 60.34 27.3% 37.4% 0.12 1.68 8.3% 6.1% FY13E 14,650 884 1,041 16,104 -978 15,127 0 -3,000 -6,185 -348 2,268 7,897 FY13E 48.1% 33.2% 52.4% 24.0% 24.0% 86.41 20.3% 26.5% 0.17 1.61 9.4% 10.0% FY14E 14,852 928 15,735 0 15,735 7,897 6,923 FY14E 38.8% 27.1% 25.7% 2.3% 2.3% 353.96 19.8% 25.1% 0.21 1.55 8.8% 9.5%

Liabilities Current Liabilities 21,933 25,951 Others 1,381 1,826 Total current liabilities 23,315 27,777 Total debt 43,198 40,820 Other liabilities 30 30 Total Liabilities 66,543 68,627 Shareholders' equity 94,870 103,097 BVPS 222.27 246.05 Source: Company reports and J.P. Morgan estimates.

29,511 1,826 31,337 37,820 30 69,187 112,879 269.40

FY14E 6,923 3,199 133,611 41,867 185,600 Sales growth Net profit growth 580 EPS growth 5,400 191,580 Interest coverage (x) Net debt to total capital Net debt to equity 28,660 Sales/assets 1,826 Assets/equity 30,486 ROE 37,820 ROCE 30 68,336 123,244 294.14

Saurabh Kumar (91-22) 6157-3590 saurabh.s.kumar@jpmorgan.com

Asia Pacific Equity Research 21 June 2012

JPM Q-Profile
Housing Development & Infrastructure Ltd. (INDIA / Financials)
As Of: 08-Jun-2012 Quant_Strategy@jpmorgan.com

Local Share Price

900.00 800.00 700.00 600.00 500.00 400.00 300.00 200.00 100.00 0.00 May/97 Dec/97 Jul/98 Feb/99 Sep/99 Apr/00 Nov/00 Jun/01 Jan/02 Aug/02 Mar/03 Oct/03 May/04 Dec/04 Jul/05 Feb/06 Sep/06 Apr/07 Nov/07 Jun/08

Current:

66.45

12 Mth Forward EPS

80.00 70.00 60.00 50.00 40.00 30.00 20.00 10.00

Current:

22.43

Jan/09

Aug/09

Mar/10

Oct/10

May/11

Dec/11

0.00 May/97 Jul/98 May/04 Jul/05 May/11 May/11 May/11 May/11 Dec/97 Feb/99 Sep/99 Apr/00 Nov/00 Jun/01 Jan/02 Aug/02 Mar/03 Oct/03 Dec/04 Feb/06 Sep/06 Apr/07 Nov/07 Jun/08 Jan/09 Aug/09 Mar/10 Oct/10 Oct/10 Dec/11 Dec/11

Earnings Yield (& local bond Yield)

90% 80% 70% 60% 50% 40% 30% 20% 10% 0% May/97 Dec/97 Jul/98 Feb/99 Sep/99 Apr/00 Nov/00 Jun/01 Jan/02 Aug/02 Mar/03 Oct/03 May/04 Dec/04 Jul/05 Feb/06 Sep/06 Apr/07 Nov/07 Jun/08
12Mth fwd EY India BY Proxy

Current:

34%

Implied Value Of Growth*

3.00 2.00 1.00 0.00 -1.00 -2.00 -3.00 -4.00 -5.00

Current:

-144.93%

Jan/09

Aug/09

Mar/10

Oct/10

May/11

Dec/11

-6.00 May/97 Dec/97 Jul/98 Feb/99 Sep/99 Apr/00 Nov/00 Jun/01 Jan/02 Aug/02 Mar/03 Oct/03 May/04 Dec/04 Jul/05 Feb/06 Sep/06 Apr/07 Nov/07 Jun/08 Jan/09 Aug/09 Mar/10 Dec/11

PE (1Yr Forward)
25.0x 20.0x 15.0x 10.0x 5.0x 0.0x -5.0x May/97 Dec/97 Jul/98 Feb/99 Sep/99 Apr/00 Nov/00 Jun/01 Jan/02 Aug/02 Mar/03 Oct/03 May/04 Dec/04 Jul/05 Feb/06 Sep/06 Apr/07 Nov/07 Jun/08

Current:

3.0x

Price/Book Value
30.0x 25.0x 20.0x 15.0x 10.0x 5.0x 0.0x -5.0x -10.0x
PBV hist PBV Forward

Current:

0.3x

Jan/09

Aug/09

Mar/10

Oct/10

May/11

Dec/11

-15.0x May/97 Dec/97 Jul/98 Feb/99 Sep/99 Apr/00 Nov/00 Jun/01 Jan/02 Aug/02 Mar/03 Oct/03 May/04 Dec/04 Jul/05 Feb/06 Sep/06 Apr/07 Nov/07 Jun/08 Jan/09 Aug/09 Mar/10 Oct/10 Dec/11

ROE (Trailing)
140.00 120.00 100.00 80.00 60.00 40.00 20.00 0.00 May/97 Dec/97 Jul/98 Feb/99 Sep/99 Apr/00 Nov/00 Jun/01 Jan/02 Aug/02 Mar/03 Oct/03 May/04 Dec/04 Jul/05 Feb/06 Sep/06 Apr/07 Nov/07 Jun/08

Current:

8.18

Dividend Yield (Trailing)

6.0 5.0 4.0 3.0 2.0 1.0 0.0 May/97 Dec/97 Jul/98 Feb/99 Sep/99 Apr/00 Nov/00 Jun/01 Jan/02 Aug/02 Mar/03 Oct/03 May/04 Dec/04 Jul/05 Feb/06 Sep/06 Apr/07 Nov/07 Jun/08 Jan/09

Current:

0.00

Aug/09

Mar/10

Jan/09

Aug/09

Mar/10

Oct/10

May/11

Summary
Housing Development & Infrastructure Ltd. 480.41 INDIA 7.811639 SEDOL B1RPZ09 Financials Real Estate Management & Devel Latest Min Max 12mth Forward PE 1.21 19.07 2.96x P/BV (Trailing) 0.23 26.33 0.27x Dividend Yield (Trailing) 0.00 5.30 0.00 ROE (Trailing) 8.18 119.03 8.18 Implied Value of Growth -5.04 0.57 -144.9% Source: Bloomberg, Reuters Global Fundamentals, IBES CONSENSUS, J.P. Morgan Calcs As Of: Local Price: EPS: % to Min % to Max % to Med -59% 544% 97% -16% 9652% 357% 0% -248% 1355% 139% 412% 76% 8-Jun-12 66.45 22.43 % to Avg 169% 1224% 493% 63%

Median 5.85 1.23 0.00 41.89 -0.35

Dec/11

Average 7.98 3.57 0.47 48.52 -0.54

2 S.D.+ 18.22 15.94 2.86 128.59 1.69

2 S.D. -2.27 -8.79 -1.92 -31.55 -2.76

* Implied Value Of Growth = (1 - EY/Cost of equity) where cost of equity =Bond Yield + 5.0% (ERP)

Oct/10

Saurabh Kumar (91-22) 6157-3590 saurabh.s.kumar@jpmorgan.com

Asia Pacific Equity Research 21 June 2012

Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report.

Important Disclosures

Beneficial Ownership (1% or more): J.P. Morgan beneficially owns 1% or more of a class of common equity securities of Housing Development and Infrastructure Ltd. (HDIL). Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: Housing Development and Infrastructure Ltd. (HDIL). Company-Specific Disclosures: Important disclosures, including price charts, are available for compendium reports and all J.P. Morgan covered companies by visiting https://mm.jpmorgan.com/disclosures/company, calling 1-800-477-0406, or emailing research.disclosure.inquiries@jpmorgan.com with your request.
Housing Development and Infrastructure Ltd. (HDIL) (HDIL.BO, HDIL IN) Price Chart
1,908 OW Rs330 1,590 OW Rs545 N Rs100OW Rs315 1,272 OW Rs855 Rs230 N Rs290 OW Price(Rs) 954 OW Rs440 OW Rs330 N Rs105 OW Rs350 N Rs160 OW Rs200

Date 18-Jun-08 21-Jul-08 02-Nov-08 29-Jan-09 20-Jul-09

Rating Share Price (Rs) OW OW OW N OW OW OW OW OW N N OW 459.28 335.49 138.40 93.50 306.95 234.10 278.15 371.15 289.55 254.30 147.35 85.50 97.55

Price Target (Rs) 855.00 545.00 230.00 100.00 290.00 315.00 330.00 440.00 350.00 330.00 160.00 105.00 200.00

25-May-09 N 30-Jul-09 20-Jan-10 30-Mar-10 11-Nov-10 13-Feb-11

Jul 07 Apr 08 Jan 09 Oct 09 Jul 10 Apr 11 Jan 12

636

318

14-Nov-11 14-Feb-12

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Initiated coverage Jun 18, 2008.

The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire period. J.P. Morgan ratings: OW = Overweight, N= Neutral, UW = Underweight Explanation of Equity Research Ratings and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analyst's (or the analyst's team's) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analyst's (or the analyst's team's) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst's (or the analyst's team's) coverage universe.] In our Asia (ex-Australia) and UK small- and mid-cap equity research, each stocks expected total return is compared to the expected total return of a benchmark country market index, not to those analysts coverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analysts coverage universe can be found on J.P. Morgans research website, www.morganmarkets.com. Coverage Universe: Kumar, Saurabh S: Ascendas India Trust (AINT.SI), DLF Limited (DLF.BO), Housing Development and Infrastructure Ltd. (HDIL) (HDIL.BO), Indiabulls Real Estate (INRL.BO), Indian Hotels (IHTL.BO), Ishaan Real Estate Plc (ISH.L), Jaypee Infratech (JYPE.BO), LIC Housing Finance (LICHF.BO), Mahindra & Mahindra Financial Services (MMFS.NS), Oberoi Realty (OEBO.BO), Prestige Estate Projects Limited (PREG.BO), Shriram Transport Finance (SRTR.BO), Unitech Ltd (UNTE.BO)

Saurabh Kumar (91-22) 6157-3590 saurabh.s.kumar@jpmorgan.com

Asia Pacific Equity Research 21 June 2012

J.P. Morgan Equity Research Ratings Distribution, as of April 3, 2012

Overweight (buy) 45% 51% 43% 70% Neutral (hold) 43% 45% 48% 61% Underweight (sell) 12% 34% 9% 53%

J.P. Morgan Global Equity Research Coverage IB clients* JPMS Equity Research Coverage IB clients*

*Percentage of investment banking clients in each rating category. For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category.

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Saurabh Kumar (91-22) 6157-3590 saurabh.s.kumar@jpmorgan.com

Asia Pacific Equity Research 21 June 2012

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