Ashiana Housing - Banking on Tier II and III towns!

Company is targeting 1100 cr. of pre-sales in FY23 (vs 573 cr. in FY22 and peak of 672 cr. in FY20). On a reported basis, ROE will be in early double digits implying PAT of 80-100 cr. Their overall pipeline is of 110 lakh sq.ft giving visibility for next 3-4 years and the land bank is currently on the lower side. They need to do more transactions for growth beyond FY24. Concall notes below.

  • 25-30 lakh sq.ft launches planned in FY23 (15-20 lakh will be new greenfield projects and remainder will be phase extension of existing projects)
  • Targeting 1100 cr. presales in FY23 (aspirational figure, confident of doing 1000 cr.), environment is currently very positive. Gurgaon should be >25% of sales (existing Anmol project Phase II + Phase III which will be launched in FY23 + Amarah). Will probably cross realizations of 4500 / sq.ft
  • Will only reach double digit ROE on reported basis in FY23 (and not mid-teens)
  • 3 greenfield projects will be launched in H1FY23 (RERA filed; can get delayed to Q3FY23) and 3 in H2FY23
  • When construction is quick, raw material price escalation doesn’t impact significantly (e.g. Daksh, Aditya). In Amantran Phase II, got hurt due to commodity price escalation
  • Can have gross margin compression in next 1-2 years. However, expect expansion in net profit margins in 3-5 years
  • Target gross profit margin (sales – land cost – construction cost - project overhead cost which includes regulatory cost, project interest, etc.) of 30%. In construction, material cost ~ 70%, labor ~ 20%, site overheads ~ 10%
  • Land costs have ballooned in last 3-4 months because of higher demand for plotted development, happy to have locked in land prices 6-8 months back. Seeing frothy land prices in Jaipur. Scouting for land in Gurgaon, Jaipur, Jamshedpur
  • Current pipeline: 10 lakh sq.ft in ongoing projects + 70 lakh sq.ft in future projects (of which 25-30 lakh sq.ft will be launched in FY23) + 38.94 lakh sq.ft in land ~ 108.94 lakh sq.ft
  • Have to work on project pipeline beyond FY23/24. Current pipeline is 10/11 mn sq ft majority of which majority has realizations >4500 implying potential sale value of 4500-5000 cr. This is enough for 3-4 years
  • Lot of capital will be released from underperforming projects (like Ashiana Anmol). Have enough capital for the next few years, currently land prices is a challenge rather than capital availability
  • FY23: Looking to spend 200 cr. in acquisitions or JVs (prefer JVs as its more capital efficient)
  • Chennai: Have achieved revenue, profit and ROCE targets
  • Gurgaon: FY24 onwards should start hitting minimum profit threshold and ROCE
  • Pune: Not able to get projects off the ground, don’t have clear visibility on when company will hit profit target
  • Conventionally have targeted 5-7 years of land banking. Currently, due to higher land prices feel that land bank might go below 4 years (in order to maintain ROEs). Current thought process is to maintain and improve profitability (and 15% ROE) rather than sell more sq.ft. Organization is geared up for 2.5-3 mn sq.ft sale
  • Kolkata project is still stuck, looking for opportunities to sell the land
  • Indirect/other expense breakup: 66 cr. (18-20 cr. are selling expenses which are booked at time of delivery). Finance costs should reduce going forward
  • Selling expenses are generally ~4.5% of sales
  • Booking value per flat has gone up to 54 lakh from 40 lakhs since FY19 (30-35% increase). This is a function of changing mix (average flat area has increased from 1250 sq.ft to 1300-1400 sq.ft and project mix has also changed towards higher realization markets like Gurgaon). Till now, margins have not benefitted. Currently, the projects being sold are at higher margins which will only be visible in number in FY25/26
  • JVs: At lower gross margins (can go to 20-24%) but much higher ROCE

Disclosure: Invested (position size here, no transactions in last-30 days)

5 Likes