Here are my notes from their FY21Q3 concall. Overall, sales numbers are starting to improve, cashflow visibility is very high allowing management to be more aggressive in deals. They have clearly addressed what went wrong in Gurgaon and Bhiwadi in the last down cycle (too high land prices paid). Management believes that we are at the beginning of a residential real estate recovery cycle.
- Majority of projects that were launched in the past 1-2 years will be completed in the next 8-10 quarters, leading to improved cash position. 9MFY21 cashflow numbers should sustain going ahead. Ashiana will be more aggressive in signing new projects due to improved cashflow visibility
- Deal terms with land owners have become better, land market has started hardening (i.e. prices have started increasing) in the past couple of months
- Ashiana Malhar (Pune): MOU was done and deal was closed in August 2020. Currently environmental approvals and building plans are under approval. Hope to have launch in FY22 (hopefully early part). Pune in general is a low margin fast moving market
- Ashiana Shubham (Chennai) has realizations of 4200/sq.ft and Anmol (Gurgaon) has realization of 4500–4900/sq.ft. Higher sales in Shubham and Gurgaon have increased overall company level realizations. Chennai – have been able increase prices. In Gurgaon, have not been able to increase prices yet.
- Real estate market in NCR has changed to a buoyant mode. Strategic change to drive sales in NCR has been partnership with third party consulting firms like anarock, additional relationships with the broker community. Should be able to clear most ready inventory in Anmol by Q1FY22. January has gone very well in Anmol. Hope to have closure on 2 projects in NCR market by next quarter. Costs involved to sell in Gurgaon make Ashiana business model unsustainable
- Anmol: Because Ashiana paid higher land prices, gross margins are very low leading to very low ROE.
- Bhiwadi mistake: too much capital was spent on land acquisition in the last upcycle. Will be more careful this time around
- Kolkata: No outlook to do any more transactions
- Chennai: In advanced discussions (term sheet not yet signed)
- Have a hit ratio of 1 in 3 i.e. 1 of 3 signed term sheets deals go through
- Jaipur and Jamshedpur: can sell at much lower cost in relation with sales compared to a market like Gurgaon.
- Noida: Senior living project term sheet in Greater Noida, hope to have it done soon
- Senior living: Enjoys higher margin and has much higher returns. Should contribute to 40% of organization profitability going forward (and 25-30% to sales). For that, Ashiana has to create a major preference in Chennai, NCR, Pune and Mumbai markets as these are the major senior living markets. Bhiwadi (Ashiana town Gamma): Plan is to move entire Ashiana town Gamma to senior living
- Kid centric home: Currently most kid centric projects that Ashiana has executed have been retrofitted. Ashiana Umang (Jaipur) has been successful in kid centric home where houses were not retrofitted and provides a model that Ashiana wants to pursue. They are currently evaluating one particular project in NCR with a clean slate design and not retrofitting.
- Focus markets: Jaipur, NCR, Chennai, Pune
- IFC platform: To fund new land purchases. Otherwise, looking for joint project development
- Poor ROE for most real estate players: because of higher land costs leads to lower ROEs. Ashiana wants to only do land transactions which give a certain ROE (pre-tax IRR threshold is mid 20s i.e. close to 25%), which also means low number of deals. However, what matters more is the conservative and reasonable nature of the underlying assumptions behind the IRR rather than the actual IRR number
- With the current management setup, can do 2.5-3mn sq.ft/year. Sales should be >2mn sq.ft in FY22. Expect margins to expand going forward. Hope to get to mid-teens ROE in next 3-years. Want to create a floor on ROE in the next downcycle (how?)
- No new project launches in FY21, its mostly been additional phases in existing projects. For FY22, most launches will be on similar lines i.e. new phases in existing projects.
- Longer term plan: to create an annuity income stream from commercial real estate? Or provide contract manufacturing? NOPE!
Disclosure: Invested (position size here)