Wishing you all a very happy Diwali. I would like to initiate a discussion on a small cap called Poddar Developers which came to my radar last month. I came across this relatively unknown company via this blog -
Poddar Developers is a real estate builder with focus on affordable housing. Its market cap is around 400 Cr. They typically price each unit from from Rs. 10-20 lac and charge at around Rs. 2000-2500 per sqft. I read somewhere that they have around 100 acres of land bank across the country acquired at attractive prices. Currently, they are focused at the sub-urban areas around Mumbai.Their first project at Bhivpuri started in 2010 and is fully delivered. The next 2 at Badlapur and Atgaon are currently under progress. I recently checked their website and found they have launched a new project at Kalyan. However, this is priced around 30-40 lac per unit.
Industry : I guess its a well known fact that there is a massive shortage of affordable housing in India. I read somewhere that total shortfall is around 30 million units and the total units delivered last year was less than a lac. More than these figures, I believe in what I see in Bangalore where projects <40-50 lac sells like hot cakes. This gives me confidence that there is massive potential for sub 30 lac houses in India. Not very confident in 80 lac + segment though
What made me make an investment into this company are the following:
This interview of the MD gave me a feeling that this guy is honest and will ensure he will make long term compounding returns for an investor like me. I know this sounds very naive. But please go through this video https://www.youtube.com/watch?v=SORy2qt1x10
I did some back of envelope calculation based on the interview of the MD with IIFL. Here is the link http://www.indiainfoline.com/article/news-top-story/rohit-poddar-managing-director-poddar-developers-114090600029_1.html What excited me was the proposed launch of 30,000 units. Lets assume the delivery will be over the next 7 years and the average selling price of each unit is 15 lac. This gives us a revenue of around 4500 Cr in the next 7 years which is roughly 650 Cr per year. Assuming 20% NP, it would be around 130 Cr. (I got this 20% figure from 2 sources a Ashisna housing (though it is not a apple to apple comparison as Ashiana is not into affordable housing) and second from talking to the sales guy of the builder from whom I recently purchased an apartment in Bangalore. According to him 30-40% is a normal net margins on which the builders work.) This makes a compelling case given the market cap is just around 400 Cr now.
Now the calculation is point above will go for a toss if:
The MD turns out to be a crook as most of his industry peers are
Fails in execution of the projects
I have been acquiring shares from 400 onwards and this form 25% of my portfolio. Wish to remain invested for 3-5 years if the story unfolds as expected. For the last few weeks, looks like there is accumulation going on. However, lower volumes confirm that this is still undiscovered to the public at large.
Would love to hear from others. Especially the critics.
Company recognizes revenues on handover of possession of the flats, So advances for customers would be a good measure of current business strength (bookings). Any idea why did this measure increase by only ~10% in FY14 over FY13? The assumption is that company has been launching projects in FY2014, which itself could be wrong.
Well! if company did not launch any new phases in fy2014, that that could be a concern regarding their execution capabilities. Rest after detailed study of the company
Vijay - Good to see post on Poddar and thanks for putting your thoughts,
I did cover many aspects of its floats here -
http://www.tankrich.com/2014-40-evaluating-moats-floats/ (thanks Shanid for
pointing it out)
While I am happy with the composition of float , See the FY14 numbers
Developers - 31.03.2014 (Total - Rs Lacs)
Advance from Cust.
Advances from customers is a source which is sustainable when demand is
intact. Apart from FLOAT what really interested me was execution record
Revenue recognition is not like Ashiana, it is percentage of completion
method. I am still struggling to put an intrinsic value to this one but going
by huge up move in market price the margin of safety is unlikely to be met
Shanid - Landbank info is from the interview link of the MD with IIFL (link in the first post). It says 170 acres for affordable housing and 17 acres for value housing
Pranav - You are right that the advances from customer (based on other current liabilities) has moved from 98 Cr in 2013 to 105 Cr in 2014. This is because there was only one launch i.e. Poddar Navajeevan at Atgaon in April 2013 and none in Fy 2012-13. Also, Poddar Navajeevan is a relatively smaller project (576 units) as compared to the earlier Poddar Evergreens (1754 units). I got these figures from 2013-14 annual report.
But the bigger point that we need to consider is there might be relatively lower revenue recognition for the next 2-3 quarters and hence we should see this company from annual basis rather than the customary QoQ basis.
Vivek - I am not sure how you got 88% YoY increase in the advances from the customer. I am novice at balance sheet reading, so I might be missing something here. Also, as per the 2013-14 AR, the revenue recognition policy is not on % of completion basis but on the 100% completion basis (for each phase). You could check section H on revenue recognition in page 20 of the 2013-14 AR. This means we will have a very lumpy nature of revenues for this company.
Also, there are 4 launches from Oct-14 to Jun-15. This means the story will look better and steady (probably) after a year or so.
Long story short, we might see a period of consolidation for the next 2-3 quarters as we might not see any fireworks in the results (my high level thinking) and we might get opportunities to buy at lower levels.
Hi Vijay - 88% is the contribution of FLOAT and not YOY growth of customer advances,
Again I did recheck page 20 of AR
Revenue recognition in respect of property sale transaction** is on the
basis of agreement to sale as well as on the transfer of all significant risks
and rewards of ownership to the buyers on handing over the possession
of the property.**
Also check on same page check inventory section, calling out inventory is valued as
plus also the effect of profit / loss where the construction is
reasonably complete, in respect of unit sold, as determined by the
management with the help of technical experts in respect of projected cost
of completion, percentage of completion and the projected revenue and as
per Guidance Note issued by the ICAI in respect of âAccounting for Real
Estate Transactions (Revised 2012)â.
I ran a comparision with Ashiana AR here is there revenue recognition
g) REAL ESTATE PROJECTS
st st i) Revenue in respect of the projects undertaken on or after 1 April, 2011 and the projects undertaken between 1 April,
st 2006 and 31 March, 2011, which did not reach the level of completion as considered appropriate by the management
st within 31 March, 2011, as discussed in (b) below, is accounted for (i) on delivery of absolute physical possession of the
respective units on completion, or (ii) on deemed possession of the respective units on completion or (iii) on physical
possession for fit-out, as considered appropriate by the management based on circumstantial status of the project.
st st ii) Revenue in respect of projects undertaken between1 April, 2006 and 31 March, 2011, which did not reach the level
st of construction as considered appropriate by the management within 31 March, 2011 is recognized on the
"Percentage of Completion Method" (POC) of accounting and represents value of units contracted to be sold to the extent
of actual work done against total estimated cost of execution. The corresponding cumulative amount at the close of the
year appears under âCurrent Liabilitiesâ as deduction from âAdvance from customersâ.
The estimates of saleable area and Construction cost are reviewed periodically by the management and effect of any
change in estimates is recognized in the period such changes are determined.
I could be wrong but I was not able to infer this getting categorically called out in AR of Poddar
Do you have any management commentary around this ?
You are correct in saying that the policy of revenue recognition is not clear in the annual report. But I remember coming across the information that the company recognizes revenue on handover of possession in clear words. I think that Rohit Poddar said it in the interview in “Jam with Sam”. You will have to check.
I was more worried about taking a call on their ability to ramp up their execution capabilities. The company claims to have delivered 3000 apartments till now. That is it made about about 1000 apartments last year. The company has launched 30,00 apartments, so it has to deliver 27,000 apartments. If we take 5.5 years as development time, than company has to deliver 5000 apartments per year. That is, 2 mn sf (taking average size of apartment to be 400 sf) starting tomorrow onwards. This would be higher than what is done by Ashiana Housing. Rohit Poddar says that they want to work on developing 100,000 fats at a time rather than 4000-5000. But, what is the possible roadmap?
I don’t feel convinced about this ramp-up in execution, in-spite of Mr. Deepak Parekh speaking positively about the company. But, I have not yet looked at the company in great detail, and any inputs on this will be appreciated.
Pranav - Lets give some time to the company and closely monitor the execution. I see it as a calculated risk where rewards could be of high magnitude if the company is able to deliver.
BTW, I surfed about their project (Poddar Navajeevan) in Atgaon and was surprised at the scale at which it is being planned. It is supposed to be a 5 phased project with 9000 units. So, we are talking about around 1000 Cr project in the next 6-7 years. In my previous post, I mistook the numbers for Phase I for overall number of units.
In the Fy14 AR, there is a mention that 274 of 576 flats in Phase I are sold as of March 2014. The most important thing to check is how the demand for remaining units of Phase I and may be Phase II is shaping up.
Can I request the interested valuepickr friends in Mumbai to do a scuttlebutt? I think it will be very helpful to to get insights on the execution capability of the management.
I have been working on this company for the last few weeks. Would be great to get into a more detailed discussion on this and collaborate further. I was able to meet Rohit Poddar few weeks back in Mumbai to understand more about Poddar Developers. I still have few questions and we can jointly work towards answering the same.
Please ignore the previous post. Not sure why it appeared. My apologies
Rohit- For me the most important question now is to understand how the demand for the large project at Atgaon (Poddar Navjeevan) is and how has been the construction progress. I feel this will give good insights into how good or bad this business is. My fundamental assumption is if this large scale experiment is a success than there is a value in the ‘manufacturing style construction’ that Rohit Poddar talks about and it is most likely sustainable over years and locations. In order to appreciate what I am saying, please check out the promo video of the project in their website and put yourself in the shoes of a household with total monthly income is around 30k. I think its a paradigm shift.
As per the Fy14 annual report, you had sold around 50% of the first phase of Poddar Navjeevan project at Atgaon:
-How has the response been so far? How many units have been sold till date?
-Though it is a large scale project, it is located around 50 kms from Thane. Have you found this distance and the possible lack of infrastructure connectivity from Mumbai city a deterrent to the off take?
-We learnt that it is around 9000 units project spread over 5 Phases. Could you please throw some light on timelines of the completion of each phase.
PJ : Should we call this proposed interaction Rohit calling Rohit
I took the number of 30,000 from Vijay post initiating the discussion. The assumption of completion of projects in 6-7 years might be too fast. In the following link Rohit mentioned 8-10 years time for completion of the Shahpur project.
Pranav and Vivek - I got this 30k number from the IIFL link (posted above) dated Sep 2014. Here is the excerpt:
Brief us about your current and upcoming projects?
Currently we have projects running in Kalyan, Badlapur, Shahapur and Karjat these projects are being delivered over multiple phases totaling approximately 25,000 apartments, out of which 3,000 have been delivered. We are launching additional projects in Kalyan, Vasai, Goregaon and Vidyavihar, comprising of approximately 5,000 apartments. These projects are expected to be launched in Q3 and Q4 of this financial year, subject to receiving regulatory approvals.
Looks like the NDA govt. is walking the talk. Easing of the FDI norms manifests the serious intention of the govt. towards 100 smart cities, affordable housing etc. This seems like the beginning of good sectoral tailwaind:
Vivek - Think about it this way. Since 2010 i.e. in the last 4 years, this company has delivered 3000 units. This was when the company was unknown (as a real estate builder) and did not have the benefit of multiple projects running concurrently. Until very recently, there were only 3 projects running. Also, the launches were on Mar-10, Apr-11 and Apr-13 (notice the 2 year gap between the 2nd and 3rd launch). Now we have the 4th, 5th, 6th and 7th launches between Oct 14 and Jun 15. That means by mid next year, we will have 6 projects running simultaneously (I think the first project is completed). Do you think we will have the same trajectory (700-1000 units per year as you mentioned) with such higher level of parallel construction planned. I also assume they have gained more experience from their mistakes in the last 4 years and they are wiser and organizationally more prepared to undertake the higher construction activity.
However, as I said before I would like to keep this as a key monitorable.