Annual Review - Ashiana Housing 2019

My last year review of Ashiana housing can be read here where we concluded that

The company has diversified into different cities but they are significantly dependent on Bhiwadi. Take this, Bhiwadi accounts for

• 40% of their current project’s unsold inventory

• 45% of their future projects saleable area

• 35% of their Land back

Lets first look at how they did in Bhiwadi, sales improved by 60% clearly showing early sign of recovery. The management in conference call indicated that even though the inventory overhang in Bhiwadi is 9 to 10 years they have performed significantly well over the competition

Source Annual Presentation

However they need to keep this momentum as even after the above performance, 40% of their unsold inventory is still in Bhiwadi, management indicated new launches in geographies beyond Bhiwadi will lower this number in next 24-36 months

Source Annual Presentation

For this year the company had an uptick in the area booked and slowed down construction due to last 2-3 years of slow bookings. There was no improvement in realization and management indicated they had to resort to discounting & Interest subvention to push up sales especially in Bhiwadi.

Key activities during the year

• They introduced a new product category of Kid-Centric Homes and the initial response has been good.

• They acquired a new parcel of land in Jaipur to launch a comfort homes project

• FY19 was a subdued year in terms of launches with just 2 launches

• New training for employees, Major focus on identification of top performers in company and investment in technology (Salesforce for leads management)

Future

For management that is conservative, Ashiana housing has given a guidance of doubling its area booked to 20 lakh square feet next year, the management thinks that this is bottom of the cycle because sales have actually started outstripping the new launches, and therefore a total inventory in the industry has been reducing over the last eight quarters. And that would benefit pricing over the long-term, And when pricing will go up they think that’s when really the demand will start kicking in again, and people will start investing into real-estate a little bit more.

That’s why next year would be a launch heavy year

Source Annual Presentation

Land deals off-late have become more lucrative, more so post-consolidation. It’s easier to find better JDA deals as well, JDA partners also are willing to tie-up with organized developers, they are more secured in doing those kinds of tie-ups with organized developers.

They see themselves as multi-city operators doing 5 lakh to 10 lakh square foot every year in each city

Our view is that we should concentrate on five, six cities, being Bhiwadi, Gurgaon, Jaipur, Kolkata, Chennai, and hopefully, Pune if we can get things going there, and make these cities large, and hopefully get each of these cities to give us 5 lakhs square foot to 10 lakhs square foot per city. Now, whether we are large in that city’s context, I am not so sure, but getting 5 lakhs square foot to 10 lakhs square foot a year over a five-year perspective would be like would be sort of the target or the goal in getting really there.

I earlier also did a post on how to value this company?

As you would have realized that the company turned cash flow negative post that financial year.

This year the company has turned positive at pre-tax cash flow from operations levels. Hypothetically if we believe management (and I do) better times are ahead for the company. I think that the company is well placed to throw 70-80 crores free cash every year in 2 years time and I would be adding below INR 1000 -1100 crore market cap (12,13 times pre-tax cash) subject to my single company exposure limits