Two years and No returns

My Last year’s review of Ashiana can be read here

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The real estate industry continues to be impacted by oversupply and demand pressure, this graph from their detailed investor presentation points out the fact, The lead indicator which is Area booked continued to be at the same space like last year and realization are flat
The Area Booked, however, is improving from last three quarters and we need to track sustainability of the trend

 

Like all years their annual report is very informative and management is clearly indicating that they are seeing this as an end of a downtrend for real estate markets for their key operating markets . The company has identified Bhiwadi, Jaipur, Gurgaon, Chennai, and Pune as key focus markets. They continue to scout for new opportunities in these locations except Bhiwadi. To reduce pressure on the balance sheet and for long term growth capital, they have signed a deal with International Finance Corporation (IFC) to co invest in new projects to the tune of `150 Crore matched by a contribution of `225 Crore by Ashiana.
Kid-Centric Homes – A New Product Category was added to their offering and management is indicating that they are seeing good traction for same
New Land parcels were bought in Pune and Jamshedpur
The Q&A section with management is worth a read as well. My key takeaways were
  1. Management is expecting to turn positive on operating cash flow level in 2018-19 as demand is picking up
  2. The industry is consolidating and share of the organized developer is going to increase.
  3.  Companies has –  Inability to significantly increase prices across projects due to ongoing sectoral slowdown
  4. The company continued timely delivery in spite and didn’t slow down their construction
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
Their success is tied to doing well in Bhiwadi and expanding well in other cities, the annual report doesn’t paint a pretty picture of Bhiwadi micro market. Dropping unsold stock resulted in reducing the inventory overhang levels, showing some signs of recovery in the market. However, the overhang levels still stood up high and iscurrently 110 months at the end of Mar 2018.
Future
The company total saleable area is about is
  1. 8 lac square feet – unsold Inventory
  2. 73 lac square feet – Future projects
  3. 87 lac square feet – Land Bank
if I value Ashiana like this I can easily bloat their value to ~INR 3000 crore, however, the better way to value them is using pre-tax operating profit which is negative this year as well, so this will throw a negative number
The company in a downtrend year is doing about ~300 crore sales and ~38 crore profit would look widely overvalued as it would be selling at 5X sales and 38 times trailing earnings at current m-cap of INR 1500 Crore. This method would be incorrect as well. In hindsight, I should have been watchful and not created a position in slumping real estate market. However, I do think sales numbers are picking up and in past Ashiana has done 3-4 times booking of its current number.
Area Booked and Bhiwadi sales would be watch numbers and lack of sustainability should make me exit. There are better players who are doing well in other Micro markets like Sobha in south
Two years and no returns, investing is downtrend is a good teacher 🙂

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