About the Company
Ashiana Housing Limited is a real estate company. It is
engaged in the development and construction of group housing projects in the mid-income segment and
active senior living projects for senior citizens. It has projects in Delhi, Rajasthan (Bhiwadi, Jaipur & Jodhpur), Maharashtra (Lavasa) and Jharkhand (Jamshedpur). It has also acquired lands in Gujarat (Halol) and West Bengal (Kolkata) for future expansions. Ashiana became the only real estate company from India to feature in ‘Asia’s Best Under A Billion’ list of companies compiled by the Forbes magazine in September 2010. It also featured in 2011 edition too.
Strengths
Land Strategy: Ashiana Housing Ltd. (AHL) treats Land as an inventory that is stocked enough for consumption rather than accumulating huge land bank. It tries to maintain five to seven years of inventory at every point such that it ensures smooth execution of planned growth. Moreover, it partners with land owners in joint development model which lowers investment requirements. They operate in locations where land is a smaller component of total cost (20-25%). All these strategies allow efficient utilization of available capital, which along with very low leverage provides Ashiana the strength to withstand cyclical risks unlike its peers.
Product Centric Approach: The company follows a ‘Product-Centric’ approach rather than ‘Location-Centric’. They focus on ‘Group Housing’ for middle income groups and ‘Active Senior Living’ complexes for senior citizens. It has three decades of experience in serving the demands/requirements of the target segment and very well understands the nuances of the product that they sell.
In-House Construction: Ashiana has in-house construction capabilities which allow cost and quality control, flexible and speedier execution with faster adaptation to changing industry dynamics. It also results in efficiently priced homes and better margins which would have otherwise gone to third party contractors.
In-House Sales: It's in-house sales team engage in selling to actual users and long-term investors instead of a broker driven model selling to speculative investors. This provides better market insights in an industry starved of quality information. This also results in projects getting occupied faster and ensures that there is no active secondary market of its units, which are selling at a discount to rack rates. This greatly helps in maintaining sales momentum and in turn result in regular cash flows from the projects.
Facility Management: The company offers Facilities Management Service through its subsidiary Vatika Marketing Limited (VML) on its built projects. VML's facility management maintains over 5000 flats in over 17 complexes, covering an area of 5 million sq. ft. Proper maintenance increases the life of homes and enhances their capital values. This indicates Ashiana's long term commitment. Although facility management is not a very profitable segment but it helps in understanding the customer better and completes the entire value chain. These inputs enable AHL to improve its products accordingly. Moreover, information on resale & rental values and occupancies aid in taking strategic calls.
Accounting Methodology: Ashiana has changed its Accounting Policies from Percentage of Completion method to Contract Completion method. In the latter method, revenues are recognized when the unit is completed and either possession is transferred or deemed to be transferred to the customer. Till that time, whatever cash inflows happen from customers on the projects are recorded in the Current Liabilities under 'Advance from Customers' and direct expenses incurred are accounted in 'Work in Progress' under Inventories in the Balance Sheet. This conservative method of accounting reflect the assets and liabilities of the company more accurately. It makes it easy to understand the operating cash flows and better reflect the margins of the company. It will also help maintain financial discipline in the business as a whole. On the negative side it will lower the revenues and profits in the next couple of years. It also makes the P/L statement lumpy & volatile and incomparable on a quarterly basis. The best drivers to measure the performance are sales booked, construction done and operating cash flow generated.
Active Senior Living: Ashiana has the first mover advantage in the rapidly expanding post retirement housing sector with its product ‘Utsav - Active Senior Living’. It is a housing community built keeping in mind the basic needs of the elderly. Moreover, for seniors above a certain age AHL offers Utsav Care Homes (a new extension in Utsav campuses). It is a pragmatic concept that provides housing, support services and professional care for elderly individuals who need help with daily activities such as hygiene and health & medication.
Brand Value: Since the company enjoys a very good brand name, the construction finance requirements are met with customer advances. This results in high return on average net worth (RoNW). Moreover, more than 50% of its sales are accomplished through customer referrals.
Risks & Concerns
Land Bank: Ashiana’s strategy of not accumulating land bank reduces revenue visibility beyond five-six years. Also, the company’s future growth will be dependent on the ability to acquire land at reasonable prices in an increasingly competitive market. The company has acquired 4 land parcels in the last financial year - two in Rajasthan, one in Gujarat and fourth in Kolkata.
Regulatory Hindrance: There are regulatory concerns in almost every city the company operates. Withholding of the approval process in Rajasthan and delayed procedures for conversion in other locations pose a serious challenge to the future projects.
Competition: Since Ashiana primarily operates in Tier II and Tier III cities, it faces a lot of competition from the unorganized sector which could affect future demand. However, due to its brand value it has been able to sustain its margins.
Interest Rate: Ashiana’s main customers include middle income group and retirees who look for affordable housing. Any significant increase in home loan rates may adversely impact the company’s future demand as it will limit their buying ability.
Conclusion
The company delivered an earnings-per-share (EPS) of Rs 37.38 in FY2012 and paid a dividend of Rs 2.25. It is expected to do an EPS of Rs 30.00 for FY'2013. The dip in profit would mainly be due to the change in Accounting Standard. The company delivered an EPS of Rs 4.78 in Q1 of FY2013.
At the present price of around 150/-, Ashiana looks like a good buy. Even the promoters - Ankur, Varun & Vishal bought more that 1.5 lakh shares on 14-Aug-2012 @150/-.
Disclaimer: The author holds shares of this company.
