Ashiana Housing - Banking on Tier II and III towns!


(Utkarsh Patel) #61

(Utkarsh Patel) #62

Yes Ayush,

Re-evaluating Ashiana is next on my to-do list.

The diversification across geography & scalability in each region assures risk mitigation to an extent of certain state policies.

Need to dig deeper.

Regards


(Dhwanil Desai) #63

Hi Utkarsh,

I completely agree with Ayush. It is one RE company which is treading a very different path and has many unique things (business model/ethos/accounting treatment).

I was also in the two minds in considering AHL as investment opportunity because of the asset heavy business model and the “negative connotation” of real estate business. However, as the story unfolded on careful research of the company, I changed my views completely. though, I do not want to bias you before you do your independent analysis, It was one of the best real estate companies amongst many RE companies that I have analysed on many parameters.

Best Regards

Dhwanil Desai


(Utkarsh Patel) #64

Yes, opportunity size is big . Ethical Real Estate company are hard to find. If and when the sector picks up, Ashiana can even command scarcity premium (this can be additional kicker and not investment rationale) assisting returns alongwith earnings growth.

Regards

Utkarsh


(Ayush Mittal) #65

Hi,

If you talk about Ansal’s to any layman, one would easily estimate their value to be more than 20-25K Cr as they are one of India’s oldest and biggest real estate players. But the whole co is available at a M Cap of 600 Cr and EV of 1700 odd Cr. So is value there…yes! But historically, they have been one of the worst in terms of sharing the value with minority shareholders. Open their annual report and one would get crazy with the complexity and auditor qualifications etc etc. So at the end of the day its all upto the promoters. I have seen this stock do very very well in bull markets and very very poorly in bear markets.

Ayush


(Sunil Arora) #66

Ansals was a name to reckon with in Delhi RE market. So many of Connaught Place buildings were made by Ansals. They made further progress with setting up Palam Vihar and Sushant Lok in Gurgaon. Then the famous Ansal Plaza in Delhi, the first mall. However their record in maintenance was very poor and this reflected in the Fire that broke out in their building in CP in 1990. This was followed by fire in Uphaar Cinema in Delhi where so many people died in 1997. The case is still on and has hit the group hard.

All three brothers have gone their own with Sushil Ansal family running Ansal Properties. Zero Corporate governance is the name of the game in this group and you will never know how the landbank has been funded. So lot of wealth buried in the landbank may prove to be illusory.

Just some histroy that I have witnessed having known some key employees in good old days

Sunil Arora


(Sunil Arora) #67

Ansals was a name to reckon with in Delhi RE market. So many of Connaught Place buildings were made by Ansals. They made further progress with setting up Palam Vihar and Sushant Lok in Gurgaon. Then the famous Ansal Plaza in Delhi, the first mall. However their record in maintenance was very poor and this reflected in the Fire that broke out in their building in CP in 1990. This was followed by fire in Uphaar Cinema in Delhi where so many people died in 1997. The case is still on and has hit the group hard.

All three brothers have gone their own with Sushil Ansal family running Ansal Properties. Zero Corporate governance is the name of the game in this group and you will never know how the landbank has been funded. So lot of wealth buried in the landbank may prove to be illusory.

Just some histroy that I have witnessed having known some key employees in good old days

Sunil Arora


(Pranav Singh) #68

I agree with Ayush. Real estate is very cyclical. Infact, I beleive that real estate is the definition of cycles. But mid cost housing is not very cyclical. It has a strong secular underlying demand which would last for decades.

In India rental yield is 2-3%. Home loan is available at 11%, cost of equity in real estate would be higher. Lets say cost of real estate is 12-13%. Then on average real estate prices would increase by 10% per annum on a conservative basis. At constant profit margins, profit would increase by 10%, when company does not increase its execution capability. That sounds like a big tailwind to me. Also, when company moves to higher priced locations like Sohna from Bhiwadi on joint development agreements, there would be further upside.


(Vinay) #69

Hi All,

Ashiana Housing AGM Updates held on 29.08.14 at Kolkata.

Co. Secretary was perhaps new and he ended the AGM within 5 minutes of its start. Varun Gupta was still not there. As the minority shareholders were not given any opportunity to speak, they made total chaos, going on the Dias in groups and shouting on top of their voice. After Varun came, he controlled the situation and allowed the shareholders Rs 200/- Big Bazar discount coupon for which they were insisting.

Finding the opportunity to talk to Varun, he shared the underneath details:

)- Co. is targeting in next 4-5 years 45 lsf. i.e. apx. 15% CAGR in volume growth.

)- They expect margin to increase @ 5% CAGR for next 4-5 yrs, targeting PBT of Rs 1000 per sq ft.

-They are further improving their efficiencies in materials by using higher quality and lesser weight for TMT Bars.

-Joint venture at present is apx 40% of total volume. J.Venture PBT is apx. Rs 600/sq ft and owned is more than Rs 1000/sq ft. giving them the blended profit of Rs 800/ sq ft.

-Theyâll be charged with full tax from 2015-16.

-Accounting transition is almost complete. From now on Q-on-Q results will be very lumpy but whole year results will show the better picture.

-They are presently running 10 sites. They are operating with surplus labour and can handle 13-14 sites with present man force.

-Working on advances wonât be problem going ahead. Customers wait for companyâs new project to be launched.

-G+4 Buildings are completed in 18 months and G+12 takes around 30 months which they are trying further to complete it within 24 months but in that case investors will get fewer months for payment.

-Once they enter new city, they establish their competitiveness by completing the project as scheduled.

-No fix dividend policy. They want to distribute very less dividend as they are earning around 30-35% of capital and will need capital to grow. Varun also said they (3 brothers) are not aware of any other business except that of promoting, and dividend will be of less use to them, except to buy there own stock.

-They usually want to have land size, where minimum constructions area be 10 lsf.

-One thing that may trouble is bookings, but with the stable Govt.and improve in job conditions they expect to overcome it.

-Overall Land cost is less than 25% of selling price, which further comes down due to inflation by the time of project completion.

-He also referred to the books- Outsiders and Checklist Manifesto.

Regards

Vinay


#70

Thanks Vinay for updating. I’ve a couple of questions.

1). Was there any mention about Ashiana foraying into affordable housing that the new Govt. is thrusting?

2). Was there any talk about new launches? Like Kolkata or Chennai?


(Vinay) #71

Hi Ashwin,

1). Nope.

2). Kolkata presently, they are stuck with joint venture project-not getting regulatory clearances. Small capital of the Co. is blocked in the project and they are hopeful of getting it back. Chennai, they are on the verge of finalization of one deal.


(Saisundar R) #72

Hi Everyone,

I see Ashiana Housing ads that talk about 50% EMIsharingsharing. Do you all see it as signal for headwinds faced in booking?

Thanks!


(Varun) #73

Folks- a question around ashiana and real estate in general…

While everyone is talking of the huge boost to real estate with the new government focus… what it makes me wonder is whether there is a lot of supply coming up which could pull property prices down and hence restrict the real estate upside…

By the same logic- if that happens… can housing finance companies also see a risk of higher NPA’s if asset values start falling.

Thoughts invited…


#74

That affordable housing or REITs might not have an impact on Ashiana housing. As far as we are concerned, we are not too bothered with all that noise. With a differentiated business model and into seniors living housing, it does not matter what the government focus is. Ashiana is not into affordable housing nor it has huge commercial land bank to capitalize on REITs.

In general, we are better off with good infrastructure (good connectivity, water, electricity, etc.) around our projects, comparatively lower interest rates and other fringe benefits (like interest component of housing loan deduction upto Rs 200k).

Regarding HFCs, that NPA situation may arise if property values start falling though it might not be very sharp. I’ve not read into HFCs to have a view on the business model of them but HFCs like GRUH finance and Repco are better placed since they don’t lend that much into LAP or speculative/investment purchase and are predominately rural lending.


(Varun) #75

Thanks Ashwin

How should one value such companies ? Still don’t have a handle if this is too expensive or not .

Ayush - can I request your views too pls ?


#76

I don’t know as to how we should go about valuing the company like Ashiana with volatile earnings unlike some firms like Page or Ajanta with kind of stable Q-Q earnings. However,

1). Look up at the investor presentation. We can gauge the amount of housing units available for sale, future new projects launches etc.

2). Average realizations are slowing inching above around Rs 3000/sqft. With entering markets like Gurgoan, Chennai and Kolkata, margins might improve further. Gurgoan is expected to rake in Rs 600 cr of revenue.

3). Good, honest and conservative promoters. At AGM, they said: they didn’t know any other business and will concentrate on Ashiana.

4). I love negative WC businesses. Ashiana is not such a business but got to like the advances from clients and building from their money and making more money after handing over.

Never been successful in timing the market or am psychological strong to wait for correction and moreover I don’t know what is the fair valuations to pay. Invested only recently from Rs 105 levels onwards and bought levels of Rs 270 as well. As far as I’m concerned, I like the business, can understand the business and have confidence with the promoters. I have no views on valuations. If I’ve the capital, will invest at CMP subject to my portfolio allocation target to Ashiana, business doing well and earnings visibility are present.


(Prashant Kulkarni) #77

Ashiana Housing Article in Forbes India

Looks like an add than an article


(Santosh Sinha) #78

Many things are going right for this company and stock

FY 16 is expected to be bumper year, with sales touching 600 cr and PAT of 100 Cr, So EPS of 12 is expected. This is bec many of its proejcts are getting completed in FY16and will be handed over to customers. The co recognises revenue only when it is handed over unlike other RE co. There are going to be many new launches in Chennai/kolkata/Gurgaon etc. The co plan to go big and national now although very gradually.

Mgmnt is highly ethical and very conservative, Mcap is still only 2000 Cr, so scalability is v high. With RBI rate cut and low int rate regime can be additional factor for stock to do well in short term.

Entry of real big names( Prof bakshi, jwalamukhi, Ashish kacholia, westbridge, creador capital, Goldman Sachsetc)makes this an interesting bet.

Disc : invested, views are biased.


(Rishi) #79

There are couple of ways I have looked at Ashiana for evaluation

1). Go with Management’s suggestion of tracking pre-tax Operating Cash Flow which they report on a regular basis

2). Track the sales which would convert into revenue in my estimate of 18-24 months time period. This is a rough estimate but good enough to show the huge amounts of margin of safety here

Disclosure: Invested

Note: Not a recommendation. Please perform your own analysis


(ricky76) #80

I have gone through this thread and other material on Ashiana available the web. On balance, I would agree that Ashiana is an interesting company with original ideas on creating value in the real estate sector. It also does seem likea good long term bet.

However one always has to wear a skeptical hat in investing. Below are a few points from my side that I havenât seen being discussed much;

1). Land as inventory)- I feel too much is being made of this strategy. Developers are in the business of taking land and converting it into a desirable commodity called a house/condo/flat. In that sense, all developers treat land as an inventory. In Singapore for example most developers do exactly what Ashiana is doing. Buy land, construct the building fast and then try to quickly sell it to release cash . Repeat cycle. Ashiana is not doing anything much different. Its strategy of partnering with land owners is a good one to reduce capital but again this is also quite common though JVs are with other developers to share the risk.

22.Risks of NOT land banking)- it is true that buying a lot of land ties up capital and leads to lower ROEs but the reality of real estate is that it is very cyclical and buying land during down times to build during good times has proven to be a very successful strategy for many developers like Li Ka Shingâs Cheung Kong developers in HongKong and quite a few in Singapore. Ashianaâs strategy seems to assume that land will always be easy to procure at a reasonable price in India and can be developed and sold on a cost plus basis. What if competition â especially in new cities it is venturing into such as Chennai- comes in with lower priced land bought earlier in the cycle? Some think of land asa strategic asset not inventory.For those really interested in real estate cycles read the book â one hundred years of land values in Chicagoâ.

3). Free Cash Flow)- this is what separates the good investments from the great. Nike and Visa generate hordes of FCF as do Page and Cera. A key bug bear with Ashiana and real estate companies in general is that all the cash they generate goes into buying more land. Since land is critical, it is actually maintenance capex and not growth capex. No FCF means no dividends EVER. This poses limits to valuation and one should not get carried away.

44). Sustainability of low debt model)- In real estate no land means no business. So you either need debt or need to dilute equity frequently or buy land in small quantities that your internal cash flow allows. As Ashiana scales up it would need to decide which option it wants to pursue. If it wants to continue maintaining a very low debt profile then similar to banks it would have to dilute every 3 years or so. Either way expect a change in the business model as the company scales up

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** 5). Management maturity**)- the best real estate guys I have seen are those who have been through many cycles and learned their lessons. The three brothers that run Ashiana while very driven and smart are quite young and have hardly even seen a single full blown cycle. I would discount their enthusiasm quite a bit.

Bobby