Ashiana Housing - Banking on Tier II and III towns!

(Subash Nayak) #41

Read the whole thread today. (Hadn’t read it completely thanks to my mental roadblock regarding RE companies). Seems like a nice combination of honest, capable, conservative management running company is a smart way (not thinking in term of land bank acquisition). They have ~0 debt, very good ROE, and are doing fairly good when everyone other guy in the industry is in a deep soup.

I have few questions on it.

1). Seems like some sort of accounting practice change has occurred recently. Any idea how it is going to affect their EPS in coming quarter. Can anyone with good grasp of accounting help us lesser mortals by explaining in layman term.

2). Talk with friends points to the fact that some sort of real estate downturn is in coming in NCR region, with builders finding it tough selling flats, and hence have started attracting buyers by offering freebies like free parking and so on. To me a real estate slump (if not bubble burst) is a very possible outcome at NCR region. Any idea how that is going to effect Ashiana.

(narendra ) #42

1.I suggest read their Annual report , they have explained accounting changes in crytal clear manner.

2.Ashiana mostly sells in towns/cities(notMetropolitan) , so this may not affect them.They have more dependency on Rajasthan (now spreading to other states).One of the reason for current slowdown in sales is becuase of government land regulatory rules in Rajasthan.Off late they got approvals.

(narendra ) #43

1.I suggest read their Annual report , they have explained accounting changes in crytal clear manner.

2.Ashiana mostly sells in towns/cities(notMetropolitan) , so this may not affect them.They have more dependency on Rajasthan (now spreading to other states).One of the reason for current slowdown in sales is becuase of government land regulatory rules in Rajasthan.Off late they got approvals.

(Ayush Mittal) #44

@Subash - my strong advice - don’t try to predict EPS for this co or be concerned on quarterly nos. Look at the longer term picture here.


(Vimal Dixit) #45

Ayush…is there more than usual unsold inventory in say previous six months where cost have been charged but revenues not yet realised andreason for comparatively low EPS in relation to historical EPS…other wise story seems to be really good.

(Kiran) #46

Have been reading the ARs from FY06 of Ashiana. Just a quick question to investors in this stock who have been tracking this for long -

Ashiana Housing seems to have changed the accounting policy twice. Before FY07, their accounting was on a delivery and handover basis. From FY08, they started doing accounting based on percentage completion method. Recently, they changed it back to delivery and handover basis.

Any particular reason (haven’t read the concalls yet) why the management changed the accounting policy in FY08 and reverted back to the older policy again recently?

P.S: Also, some good discussions on the Prof’s Ashiana blog’s comments thread.

(manish) #47

if i remember correctly, in one of the presentations the mgmt mentioned that

)- in percentage completion basis though the revenue is recognised but the risk associated with the property is still with the develop and

in handover basis, the revenue is recognised when the risk is transferred to the buyer.

i feel the handover basis is more ethical as it is easier to cheat in case of percentage completion basis, maybe they changed the accounting to improve the company image for investors

(Vinay) #48

Hi Kiran,

I suppose it was due to mandatory change in the Accounting Standards (AS) as per ICAI, that they were forced to change their accounting to percentage of completion method. However, as the new AS provided the necessary flexibility, Mgm was candid enough to change to the original accounting method.

(Kiran) #49

Thanks Vinay! That helps.


I’ve been reading the past 7 years ARs, research notes, investor’s presentation etc. The more I read, the more positive I get and want to add this to my PF. Normally I’m put off by premium valuations to stocks like GRUH trading like a internet company stock but feel for this business no point in timing or looking at valuations if one has at least 5-6 years view and hopefully in the meantime the business will also do above average.

1). Every other day I keep reading about the Govt’s affordable housing projects trust (“Pucca houses for all by 2022.”). Maybe even tax sops like the one given last year.

2). Recently expanded to Halol. Chennai and Kolkata is coming up next. Just 6-7 cities now and huge scope for upside.

3). Young and energetic management. Conservative, risk averse and seems to be shareholders oriented.

4). Decent financials. Debt free, “float” money from customers, land as RM, etc.

I’m convinced about this business. The only dilemma is would this be a better investment than say Mayur, Ajanata (still available at 16x forward PE), Shilpa, ITC or for that matter TCS (available now at 0.9 PEG, trading at multiples less than the past 6-7 years average).

Just before I start initiating buy orders from tomorrow, I would like to hear from people tracking this business if my thought process is right or if they would disagree.

Hope this stock languishes at the stock exchanges for the next one year! :smiley:

P.S: I read this recently:

(manish) #51

Regarding low cost housing for all , i think that the EPC companies involved primarily in construction will benefit more from this.

Ashiana and other developers may benefit from favorable policy. But so far, the price benchmark that the govt decides for low cost housing is very low and i dont think Ashiana is in that segment.

In many projects, the govt may allot land and govt may sell at pre-determined prices to buyers and construction will be through tenders.

Please correct me if i am wrong.



You’re right. Ashiana as the promoters see is an “aspirational” brand. Average cost for a 2 bedroom flat is around Rs 40L. The govt’s benchmark is so low and I would like to know if one can buy a 2 bhk house for less than 30L in metros or Tier 1 cities. Nonetheless, Ashiana tries hard to bring the cost down without having its margins erode and I feel it is in right direction.

(Utkarsh Patel) #53


You can see the Prof Bakshi playlist where the management explains the business model in detail @ MDI, if you haven’t watched it already

Disc: Not invested


Thanks Utkarsh. Watched it already for 2 times. :smiley:

(narendra ) #55

Ashiana is not low cost housing , recently I received promotional mails from Ashiana for flats in the price range of 1.37 crores comparing them to 2 crore plus cost flats in the same area , intelligent campaign I would say.

I like what one of promoter said “It is easy to build credibility in real estate”.

Not only that they have presence in entire chain of real estate from building , marketing , maintenance and rentals.In countries like UK and US rental brokerage is a huge market and in India it is completely unorganised.Even though real estate is cyclical I feel huge opportunity in rental brokerage may be after 10 years in India .I feel Ashiana will grab that opportunity as well as they are not rubbing off their hands after flat delivery.If you give quality service for a price people will pay for it (that is what happening currently in India everything moving from unorganised to organised be it shoes, ceramic tiles,sanitary ware, eyeglasses , jewellery , moving from local lender to NBFCs etc.,)

Promoters are professionally qualified in Real estate business ( check their qualifications), knows Indian markets very well , young and ethical.I feel we should hold this for longterm as the company will evolve with the sector.Only concern is the cyclical nature of real estate business and I have given low priority in this case because of the reasons mentioned above.

(Utkarsh Patel) #56

Good discussion

I had earlier evaluated the business, everything looked great about the management. But then I read somewhere: “When a management of great repute undertakes activity in business with bad economics, its the economics of the business that stays intact”

I was a bit naive then & now I get it that one needs to analyse it on case-by-case basis. I decided to go for pharma just due to better economics and inherently strong business model. I know this was not an apple to apple comparison, but thought why bother with huge dependence on economic cycles when opportunity cost was very high.Ashiana was good pick in hindsight. But even today, I would prefer other asset light businesses

PS: Personally, I was and am a bit skeptical of investing in businesses where Asset Turnover isn’t > 1.5 consistently because other levers of ROE may change depending on environment, a high Asset TO ensures the business more than survives & creates wealth in different market conditions.

I would rather play pick-axe & shovel theme rather than take the risk of digging.

Views Invited.


narendra -

Right. The management are also of the opinion that they are an “aspirational” product and affordable housing concept is a misnomer in India. They target middle income group who would stretch their budget to buy happiness…err homes. With regards to cyclical nature, don’t you think if the business is doing fairly well now, what would be the case when interest rates come down, inflation cools, GDP grows at a higher rate and general sentiment is good.

Utkarsh -

I was also skeptical but I’m of the opinion now that it is truly a long term wealth creator. As per latest information that I saw, they’ve sold only around 8,000 homes in 6 cities. By 2025, there will be 173 million people who are over 60 in India, more than double the 76 million today. Still a huge upside left. Coming soon in Sohna, Kolkata and Chennai. Retirement homes, and as Narendra mentioned, apartment servicing, and other avenues are almost virgin market in India.

I’ve learnt this the hard way. Asset TO, return ratios just take you so far only. As Donald says the science part of investing tells what to avoid. Investing is an art. I’m not saying you should avoid them but honestly I’ve no magic intrinsic value or almost have no clue how to valuate business so unique like Ashiana. I invested with gut feeling and mostly in my life gut feeling was almost always right.

Please go through the ARs (if you’ve not done so and) even if you’re not interested in investing. IMO, the best ARs that’ve come across; so much information. Knowledge is cumulative as Mohnish Pabrai says in The Dhandho Investor. Eagarly waiting for FY14 AR.

P.S: I’ve bought Ashiana today. Will continue to buy at CMP and on dips till I reach my target allocation.

(narendra ) #58

Yes I agree , cycle is turning in favour of real estate companies , during downturn only few companies are doing well ( like Ashiana and Oberai) , from here on all companies in the sector will do well. But once tide goes off we all know who are better.

(Ayush Mittal) #59

Hi Utkarsh,

I think the economics of a good real estate player has always been excellent in India. If a co does its work properly and doesn’t get greedy on accumulating land bank then they have done really well. The problem is that due to industry structure involving black money there are very very few cos would create value for minority shareholders also.

If you carefully look at the balance sheet, the co get a good chunk of money as advance from customers and its a big advantage and unique point. Also, with the way they have been able to successfully deliver projects in new territories, this seems to be quite a scalable business model.

I feel you should spend more time on this.



Disc: I hold

(Excel Monkey) #60

Hi Ayush,

What’s your take on Ansal properties?

You think the 6000 acres of land bank would ever be monetized? Or if would always remain to be a value trap