I realize that I wasn’t clear enough, thanks for pointing it out. I will go back to the unit economics of Ashiana and try to explain my thought process. The core business model of Ashiana is similar to a processing company where they buy land and turn it into a building and sell it (youtube playlist explaining their model). The management has previously stated that in order to generate ~20% growth, inventories should be liquidated in a 5-7 year timeframe.
In order to analyze Ashiana, these are the factors I generally look at:
- Bookings along with the booking value (giving us the average realization)
- Construction or delivery
- Pre-tax cash flow (tells us if money from current booking is enough to construct)
- Gross profit margins (proxy for variable costs)
- Indirect expenses (proxy for fixed costs)
Here are the numbers from the past:
The cyclicality of this business is clear from the above (look at bookings volume). FY14 was the peak booking of the last cycle (22.13 lakh sq.ft), which was when the real-estate entered into an oversupply situation. The oversupply seems to have bottomed out in FY18, since then bookings are going up for Ashiana and this is consistent with other listed real-estate companies. I have done some work on past real-estate cycles (eg: the 1997 peak of Indian real estate) and realised that the peak of bookings (in sq.ft) is generally twice of the previous peak (give or take 25%, its not exact science though!). Over the very long term, price of real-estate goes up by 1-2% over inflation (this is valid globally). In India, realizations bottomed out somewhere in FY19 (for most listed developers). We can have a ballpark estimate for growth in realization (as 6% GDP growth + 4% inflation ~ 10%). This is my mental model.
Now for Ashiana, in the current ongoing projects out of 31.17 lakh sq.ft, 19.35 lakh sq.ft has been booked leaving ~11.82 lakh sq.ft of unsold area. For finished projects, 6.84 lakh sq.ft of property is to be sold (this is ready to move inventory). Future planned projects have saleable area of 60.76 lakh sq.ft. And then the company has 67.88 lakh sq.ft of land which will be turned into property at some point. This means they have a total saleable area of 11.82+6.84+60.76+67.88 ~ 147.3 lakh sq.ft. This is the supply scenario. Does this make sense? (numbers are provided in the latest presentation)
For realization, prices peaked out in FY16 at 3293 which was recently crossed. Long term growth in price realizations in India has been ~10%. In order to be conservative (given how much excess inventory exists in certain parts of India), I took realizations as 4000/sq.ft in 2025. I might be wrong in my assumptions though!