When Maharashtra finally repealed the Urban Land Ceiling Regulation Act last week, Mumbaikars finally discovered the identities of this space-starved metropolis’ biggest landholders. Amongst the Godrej’s and the Wadias, there was one surprise entry — the Wadhawans of Housing Development and Infrastructure Ltd (HDIL).
Till last year, their name was arguably more familiar to the residents of Mumbai’s sprawling slums than stock market investors. That’s because the Wadhawans, HDIL’s promoters, were Mumbai’s largest slum redevelopers. They were the first to take advantage of the government’s policy to throw open slum land for redevelopment, in return for building housing for the poor.And when they finally took their firm public, the stock’s meteoric price rise rocketed them into Forbes’list of 40 richest Indians.
Since listing on the stock exchanges in July, HDIL’s share price has grown over 40 per cent. It hit a life time high of Rs 839 on December 4 and the market capitalisation soared to Rs 17,600 crore, of which the promoters hold 61.5 per cent stake.
“Things have definitely changed after listing. We have been able to not only raise resources for expansion but listing has also given us the benefit of aligning with a global player like Lehman Brothers,” said Sarang Wadhawan, managing director, HDIL. The global investment bank has bid for edeveloping Asia’s largest slum, Dharavi. The company also struck riches by banking one of the largest redevelopment projects in the country - the 6.6 million sq.ft Mumbai airport project.
Things have also gone well for the Wadhawans, who recently bought a second Rolls Royce. Slum redevelopment, where HDIL derived most of its revenues since it started working in the Mumbai Metropolitan Region (MMR), has had its fair share of controversy. It has been mired in political wrangling, charges of mismanagement or worse and faced huge problems on the ground when it came to relocating slum dwellers.
“It is a tricky business and requires expertise,” says Sujit Jain, real estate analyst with Pioneer Investcorp. It is this expertise that made billionaires of Wadhawans. It is clearly a business model which HDIL appears to have cracked.
The Wadhawan family started their construction business in the Vasai-Virar suburban region of Mumbai three decades ago and moved into the MMR 12 years ago. HDIL, earlier known as the Dheeraj group, has expanded its business model to get into commercial real estate development, retail, spread over to other cities like Pune, Kochi and Hyderabad.
While the current rise in its stock has clearly been fuelled by the potential value of their land bank, analysts feel HDIL has to demonstrate all-round expertise in infrastructure development to get better valuations.
“If HDIL shows that it can do projects well outside its niche slum redevelopment and also in other cities, the stock would get a valuation wherein it would trade at a premium to its NAV,” said Jain. Only top of the rung property companies get a premium to net asset value of properties they own while most others trade at a discount to the value of the total property they own.