Mumbai-based property developer HDIL's attempts to assuage investor concerns about the company's prospects did little to stem the stock's slide on the bourses for the second straight day on Thursday. HDIL shares, which had fallen 14.3% on Wednesday, plunged 22.44% to Rs 74.65 on Thursday as the 1% stake sale by a company promoter on Tuesday raised concerns about the liquidity position of the debt-laden firm.
HDIL management, in a conference with investors and analysts on Thursday, clarified that the stake sale was done to raise funds to make payments for a land acquisition in South Mumbai. But, market participants interpreted the move as banks refusing to lend to the company and promoters resorting to a stake sale to raise the money.
The company's high-debt levels and promoters' sizeable share pledging—about 96% of their holdings—heightened worries. "Why should promoters sell stock to buy properties?" according to AK Prabhakar, Senior V-P-Equity Research, Anand Rathi Financial Services.
Brokers said they were flooded with sell orders from institutional investors, including foreign, amid speculation about the company defaulting on bank facilities and market buzz about a family dispute.
The company, however, denied these allegations. The market was abuzz with speculation on Wednesday that a New Delhi-based share financier had dumped a portion of promoters' holding as they could not shore up margin calls. This was also denied by the company.
The company's woes have compounded in recent years as high debt levels has squeezed the company. Its net debt in FY12 stood at Rs 3863 crore, which is largely due to its high working capital needs. By the end of fiscal 2012, the company was sitting on inventories of Rs 11671 crore and trade receivables of Rs 868.58 crore, this is huge compared to its annual turnover of Rs 2006 crore.
Results are visible, the company paid Rs 308 crore interest in first half of the current financial year, which was almost 50% of operating profit. Importantly the current rate of interest works out to 13.25%. This has impacted the cash flows. Consolidated cash flow of FY12 reveals that it paid Rs 625 crore as interest and Rs 953.88 crore as payment of the long term loans, which was much higher than Rs 814 crore cash generated from operations.
"Over the last 5-6 quarters profits are largely driven by the sell of FSIs and booked about Rs 800-1000 crore of revenue through this route. But the cash has not been generated or collected. This has led to higher debtors (receivables) in the books as the debtors days have gone up from 158 in FY12 to 373 days in first half of FY13. Additionally the new launches have been subdued.
In last fifteen months or so, company was able to launch less than 1.8 million square feet in Mumbai metropolitan region as against 6 to 7 million square feet of new launches they managed to do in FY10 and FY11. These things along with the higher inventories (due to delays), had an impact on cash flows of the company" Says Param Desai, who tracks the company at Nirmal Bang Institutional Equities.
In this scenario, analysts were primarily betting on the turnaround in the operation and lower debt. In the conference call the Hari Prakash Pande, VP, Finance, HDIL said that they have already brought down the debts by Rs 200 crore and working to bring it down further while looking to monetise some its assets in Kochi and Hyderabad to focus primarily on Mumbai based projects.
He also said that they are shifting some of its short term debt to long term and recovering FSI dues along with focusing on higher deliveries so that the cash flows could improve and bring down its debt. "However we believe the debt reduction is difficult to achieve unless its cash collection from FSI transactions and customer advances improves significantly from the current levels" says Anand Agarwal, analyst at Jefferies India in a research note.
