A few days ago, we saw the grim report that Prof Sanjay Bakshi’s favourite stocks have suffered huge losses in the on-going correction. Marquee names like Kitex Garments, Ambika Cotton, Vaibhav Global, Ashiana Housing, Poddar Developers etc have all registered double-digit losses, causing great despair to the Prof’s vast legion of fans.
According to a theory formulated by Porinju Veliyath, the maverick stock picker, the reason for this sorry state of affairs is because while each of these companies is a “great company”, they are not “great stocks” owing to their exorbitant valuations. Porinju’s logic is that a “great company” makes a “great stock” only if we can somehow manage to grab it a low valuation.
Who knew that?
Anyway, we now have the unique opportunity to test the veracity of Porinju’s theory on one of Prof Sanjay Bakshi’s favourite stocks.
Ashiana Housing qualifies as a great company. The Prof’s Valuequest India Moat Fund holds 174,925 shares. The Prof’s personal holding is not known. Some other well-known shareholders are Ashish Kacholia (1,322,613 shares) and Jwalamukhi (2,642,587 shares). Brahmal Vasudevan’s Idria and Goldman Sachs also invested in Ashiana Housing via a QIP of Rs. 200 crore at Rs. 215 per share.
Ashiana Housing is also now quoting at a reasonable valuation. It touched a high of Rs. 327 on 24.02.2015. At the CMP of Rs. 165, there is a loss of nearly 50%. In just the last month, the stock has plunged 25%. The fact that savvy investors of the caliber of Brahmal Vasudevan and Goldman Sachs invested in the QIP at Rs. 215 per share is sufficient to show that the CMP of Rs. 165 is “better than reasonable” valuation.
Now, for the all-important question as to whether Ashiana Housing is a buy at current valuations, we have the benefit of the advice of two experts, Daljeet Kohli and Balaji Sridharan.
Daljeet Kohli has, in his usual meticulous manner, conducted a detailed study of the reasons for the great downfall of Ashiana Housing. Daljeet has also provided numerous facts and figures as to why Ashiana reported subdued Q1FY16 results and why he expects the numbers to be sparkling in H2FY16. Daljeet has also carefully examined the existing and proposed projects of Ashiana and computed their revenue potential. At the end, Daljeet has confidently recommended a “strong buy” in the following words:
“At CMP Rs. 172, AHL is trading at FY16E and FY17E, EV/EBIDTA multiple of 4.9x and 3.1x respectively. The management believes very strongly to recognize revenues for 1800 units (~2.8 mn sq. ft.) of residential projects in FY16 and does not expect any significant delays.
We continue to maintain our positive view on the stock with a strong BUY rating having a SOTP based TP of Rs. 290 with a 69% upside. The stock has corrected 47% from its 52 week high of Rs 327 (on 24th Feb, 2015) and provides an attractive entry.
We believe real estate business is not a quarterly business. Further, the change in accounting policy to completed contact method compels us to look AHL numbers on a yearly basis instead of quarter financials.”
A similar sentiment is expressed by Balaji Sridharan of Beowulf Capital in his piece in ValueWalk. While Balaji has not done much number crunching, his theory is that the demand for affordable housing will increase in India over the long-term and that Ashiana housing is in a position to capitalize on that owing to its’ culture, execution record and processes. He also emphasizes that Ashiana Housing has the right ingredients to survive the slowdown and that its execution ability, management, business models etc are intact.
So, both experts are unanimous in their opinion that Ashiana Housing is a strong buy. Now, whether their advice really holds good will have to be tested a few months down the line. Watch this space till then!