HDIL-time to invest at rockbottom values? SOTP Valuation included!

In my earlier post detailing why realty companies are trading at record low valuations(http://specialsituationsindia.blogspot.com/2011/12/why-do-indian-real-estate-companies.html)  I'd given a laundry list of factors and promised to give a SOTP valuation of HDIL. I chose the company due to its apparently low valuation, and seemingly good corporate governance record/information availability. The company trades at a P/BV to 0.37. And even after going through the notes to accounts, I realized that the company does seem having a good margin of safety, even after accounting for doubtful assets like promoter receivables, disputed loans etc.


But as the past 1yr data shows(broken into 6 month intervals), the equity has gone up, but the quality of assets has fallen,. Cash/non current investments have risen much slower than the project investments.





My SOTP valuation estimates the project value around Rs 12,000 crores.I estimated the percentage completion from the data in the investor presentations, and the market rate from websites like magicbricks, for project bookings presently. The riskier assumptions are in percentage completion, but I've tried to be conservative. As the breakup would show, bulk of value comes from SRA projects, whcih are inherently riskier given the dependence on TDR, and the expected release of land in Mumbai which would lower the prevalent rates. Unfortunately, the company does not reveal much data on their SRA projects, so I'd to be much more conservative. Those of you wishing to use different assumptions and see the rates, please modify the spreadsheet and check. Note-all area below only reflects the share of HDIL in the project, not the total project area.
HDIL SOTP Valuation Jan12
On the governance front, there are apprehensions about the tax demands. After the widely reported Sep09 raid on them by the Income Tax authorities, they offered Rs 350crore of previously undisclosed income to tax(potential tax impact of 30%-100% of that amount after factoring in penalty & interest). While that sum is accounted for in the books, the previous year assessments will be reopened, and thus the tax risk is a hanging sword.
Conclusion After reducing the debt worth Rs 4400 crore, it leaves around Rs 7600 crores equity on the table, is a good upside of 150% from the present market cap. Of course, with other stocks out there, it is an open question as to why would someone ditch a Piramal Holdings/Reliance Industries(both cash rich companies with similar risk/return ratios for such risky companies). But if someone wants to invest in the realty sector, then this seems one of the better stocks given management reputation for execution, good governance(despite tax issues) etc.