Ganesh Housing- A Potential Play for Housing for All theme?


(suyogdhavan) #1

Ganesh Housing Corporation Limited (GHCL) is one of the leading real estate developers in Ahmedabad founded by Late Govindbhai Patel.The Company is an established brand in Ahmedabad with an enviable track record of delivering over 22 million sq. ft.(msf) of residential, commercial and retail real estate projects.

For more info Check, http://www.ganeshhousing.com/

Numbers-The Latest
Marketcap: 595 Cr Approx CMP on Day 25Mar2018: 121
Revenue: 9MFY18 346 Cr Apx BV :150 Apx
Net Profit: 9MFY18 39 Cr Apx. FV 10

POSITIVES
1)Company enviable track record of delivering over 22 million sq. ft.(msf) of residential, commercial and retail real estate projects Since 1991.
2)RERA, REIT’s, GST, Demonetisation are the four big bang Changes made by Government which will help to prosper the organised players like GHCL.
3)Company Operates only in Ahemedabad which is emerging as one of the fastest growing cities in India with rapid infrastructural investment, development
of GIFT city and presence of major manufacturing industries and the entrepreneurial nature of the population.
4)GHCL to Benefit from Govt’s PMAY “Housing for All by 2022” and Infrastucture status to Affordable Housing as real estate market will be boosted like never before.
5)Company has Never Missed a Dividend Payout Since 2005 which shows the promotors attitude towards minority Shareholders even being a smallcap company.

INTERESTING INFO
1)Piramal Real Estate Fund has invested Rs 225 crore in the form of debt in year 2015 giving confidence to investors of GHCL as disbursals are made by Piramal REIT only after high level of due deligence.
2)GHCL has one of the largest developable land bank in Ahemedabad, with more than 50 million sq.ft. of space, a Revenue Visiblity for Next 10 Yrs.
3)The Company has 4 on-going projects having a developable area of nearly 2.55 msf. It has procured one of the largest land parcel at very low-cost, across key locations (Sanand, Thaltej, Shilaj, S. G. Road, Chharodi) in the city of Ahmedabad having a total development potential of 22.47 msf.

NEGATIVES – POSSIBLE RISKS
1)Company is concentrated only in Ahmedabad Market so it faces Concentration and Political Risk if any in Future.
2)Any Drastic Global Slowdown in GDP Growth would affect the Sector as a Whole.
3)Any Policy Changes Regarding to Real Estate

MY TAKE
With Housing shortage in India of 62.5 million ,rapid urbanisation, govt’s focus towards housing for all by 2022 company like GHCL will benefit immensely.
GHCL operating in entrepreneural city of Gujarat which is one of the fastest growing Markets in India will prosper as the company will transform itself from a small cap company to a midsize company.
GHCL With 595 Cr Marketcap, High Operating Margins, Low PE, Lowest P/BV, High Curent Ratio, Lowest Debt to Equity than its listed peers clearly defines undervalueness of the stock.
Just on a conservative note if are able to repeat the past by just completing projects of 10-15 MSF out of 50 MSF in Next 5 Years company has a Cumulative Revenue Visiblity of 7000-10000Cr, Enabling Profit Potential 1300 Cr over Next 5 Years.

Stock is a Perfect Example of Growth at Reasonable Price. Investors in GHCL will have a great opportunity to participate in big 5 Year run benefiting from housing for all theme.


(Chandra) #2

Thanks suyogdhavan for the update on Ganesh Housing .
With P/E 9.16 , CMP/BV 0.73, Dividend Yield: 1.51% ,Promoter holding: 56.24% , stock looks excellent buy for Long term. This is Low Risk , reasonable return kind of share. It will be useful if someone from Ahmadabad provides info about the reputation of the Ganesh Housing Corporation’s Management.
Disclosure: Invested.


(harshb232) #3

Do we have any information about the number of Current projects, Future projects and the inventory?


(harshb232) #4

Further why is companies Operating Margin falling for the past 10 years ?


(suyogdhavan) #5

It would be better if @Mehnazfatima could provide technical insights


(Balusu Aditya) #6

OPM has been very erratic since 2008. We need to understand why is this the case. Future cannot be determined without that.


(Rupesh Tatiya) #7

I had glanced through this company more than a year ago & following are some observations I have had at that time.

  • A quick look at the balance sheet shows that inventory & trade receivables have been climbing from FY15. Sales has been much lower than inventory. Ahmadabad had 8.5 quarters of unsold inventory & that in premium market was upto 21 quarters in FY16.

  • The average finance cost of the debt seemed very high. The interest coverage ratio has been bordering around 2 which is not very healthy.
    image

  • I had seen resolution to issue NCDs of 1000Cr. to refinance the debt to bring down the interest cost. The proposed interest rate was 17% for this refinancing which still seems very high to me. I haven’t looked if it went through.

  • The company had contingent liabilities of 380Cr as per FY16 balance sheet. Prospective investors shall go through them & check what can turn into real liability & what can not.

image

  • The loans and advances are in the tune of 500Cr. That is even more than annual sales. Prospective investors shall delve into details of these.

Based on my learning, cycles will come & go, competition will come & go but it is ability to survive in such onslaught or at bottom defines the business strength. One of the criteria for survival is prudent management of debt. Debt has ability to bring down best of the companies & even countries.

There are still ways to invest in such companies & make money but caution would be required. Valuing on liquidation value or valuing land bank might be one way to look at such situations.

Disclosure - Never had any investments


(sumit680) #9
  1. After the initial analysis, the inventory growth is much higher than sales growth. This aspect needs to be investigated further.
  2. However the free cash flow since last two years look very nice.
  3. Huge capex in 2013-14 needs to be investigated again.
  4. On evaluating the company on the basis of DCF model, with reasonable sales growth and free cash flow growth and giving a huge discount of 20% for the uncertainity of this cash flow, the stock seems wonderfully undervalued.

|Assumed FCF Growth||
|—|---|
|Year 1-3|15%|
|Year 4-6|10%|
|Year 7-10|5%|
|Discount Rate|20%|

With above assumptions the stock is undervalued by 68%.

  1. I have selected this stock for further investigation on the basis of good cash flows.
  2. Interest coverage is certainly low which is a concern.
  3. Similarly ROE of 9% is also quite low. But it may be the industry norm.

Ill request for further comments.

Regards


(Growth_without Debt) #10

Promoters have political connections. google for its promoters!


(sumit680) #11

Yes, promoters are connected with Modi and BJP.


(sumit680) #12

Here are few observations which raise serious concern abouth the financial health and op efficiency about the company-

  1. The avg finance cost for companies in India is 8.5 %. This company is paying interest @ 14-15%…This means lenders are not able to trust the company.

  2. Total interest cost for the company is varying between 25-30% of the total income. This is even higher than the net income. For its peers such as Kolte Patil, this is around 9%.

  3. High variation in Operating margins. I couldnt find a reasonable explanation in the AR for that.

  4. MD Mr. Shekher Patel was caught organising a liquor party at a farm house by police. This info might be irelevant though.

  5. A strong political affiliation exists between Company Management and BJP.
    Ill request for guidance from other members. Else Kolte patil seems better in terms of consistency.


(Manish Vachhani) #13