Hindustan Motors has huge tangible assets having good demand for all type of its assets. Sum of part method, gives a valuation per share of over Rs 100.
Opportunities and Potential
The company has three car making plants in West Bengal, Tamil Nadu and Madhya Pradesh, Chennai Car Plant (CCP) is making Lancer Car and Pajero SUV in technical collaboration with Mitsubishi Motors of Japan. Pithampur Plant is making Road Trusted Vehicles (RTV) and multi utility vehicles in technical collaboration with OKA Motor Company of Australia. Uttarpara Plant in West Bengal is making Ambassador and Contessa Cars. Hence all the three plants are latest confirming to international standards.
Uttarpara Plant located in suburbs of Kolkata has 743 Acres of land (about 3 crore sq. ft) of which about 600 acres land is surplus which shall be developed by the company. Recently, there has been media reports that the company is developing about 310 acre into I.T. Development Park for which HDFC is advising the company. This surplus land is estimated to have valuation of over Rs.600 crores. If developed, the company is likely to make profit of over Rs.1000 Crores, including land and development.
In view of interest by global auto major, to make India as a sourcing hub, the company may go in for financial tie up for its CCP and RTV plants which can unlock good value of anywhere around Rs.400 to Rs.500 crores.
The company has at its Uttarpara Plant facilities, especially in the Forge Shop, Foundry and the Press Shop, to develop component business on a large scale and hence the company has taken initiatives to supply auto components to OEMs and to the export market. This shall make it pre-dominantly an auto ancillary unit which shall contribute significantly to its overall revenue in the next two or three years.
In Feb 05, the company had divested its PUP / PPD units at Pithampur and Hosur on which a gain of about Rs.190 crores was made. Apart from this gain, the company also has 49% stake in AVTEC Ltd., a company to whom this stake was divested. This 49% is presently valued at around Rs.300 Crores. In due course, the company may think of divesting this stake to mobilise funds for its reality development and auto component business.
The company has a debt of about Rs.120 crores as at 31st March, 06, which can get paid from the liquidation of investments / joint ventures and/or reality development. With this, the company can become debt free with strong asset base.
The present working, on quarter on quarter basis, may not reflect the true worth of the company. The tangible assets held by the company in the form of surplus land at Uttarpara, (Rs.600 crores) Car Plants (Rs.400 crores) and investment (AVTEC Ltd Rs.300 crores) and Auto Component Business (Rs.300 crores) are valued at about Rs.1500 - Rs.1600 Crores. Once company shift its focus on auto components, it can turn its bottom line in black with estimated net profit of about Rs.40-50 crores.
Property development business at Uttarpara can give good rental annuity to the company.
The financials for reality development at Uttarpara shall be as under :
PHASE I : 310 Acres equivalent to 15 million sq. feet.
Cost of construction and development at Rs.1,000 per sq. ft = Rs. 1,500 crores.
Selling 7.5 million Sq. ft on ownership basis at Rs.2000 per sq. ft = Rs.1,500 crores.
Fully developed area of 7.50 million sq. ft available to lease out at Rs.200 per sq. ft per year- Rs.150 Crores rental income / annually.
Estimated time - about 3 years.
PHASE II : 310 acres equivalent to 15 million sq.ft Broadly the same financial parameters with starting time after 3 years and completion time of three years thereafter.
Kolkata is preferred as a hot destination for organised retailing, I.T. Development Centres, I.T. Enable Services, BPO, KPO and commercial centres due to low reality price and lower manpower costs. Since, the company's properly is huge and in suburbs of Kolkata, it could attract industry giants.
Threats and weakness
Any delay in change of user, permissions/clearances from West Bengal government could delay reality development business.
Any delay on part of the management of the company for car plants J/V and realising investments could hamper the cash flow of the company.
Conclusion
The company has huge tangible assets having good demand for all type of its assets. Due to very low debt burden of about Rs.120 Crores, interest burden would be least on the company. Future revenue models of the company would be more dependable and revenue generating. Also, due to low market cap of about Rs.565 crores, floating stock of the company has largely been cornered by the informed circle. Sum of part method, gives a valuation per share of over Rs.100. This valuation seems reasonable and certain with potential of its realisibility in the next three years. Hence share has potential to give over 100 per cent return in the next 24 to 36 months from its present levels.