The real estate slowdown that the Country is presently witnessing has claimed a number of victims.
One of the victims is Ashiana Housing, which is lauded for its land-bank-free business model, debt-free status and high levels of corporate governance.
Ashiana Housing operates in the ‘affordable housing’ segment of tier-2 and tier-3 cities and is supposed to be relatively immune to the real estate slowdown that has gripped the country.
However, the stock is presently sluggish though it has given a YOY return of 67%.
Daljeet Kohli first recommended the stock on 19.09.2014 when it was at Rs. 159. He promised a price target of Rs. 202 (27% upside).
That price target was effortlessly taken out on 02.12.2014. Today, Ashiana is at Rs. 221, giving hefty gains of 38% since Daljeet’s first call. It touched a 52-week high of Rs. 327 on 23.02.2015.
Daljeet has now issued a fresh report recommending a buy with a price target of Rs. 290, which is a hefty 31% from the CMP. This is what he says:
“Our Take on Analyst/Investor Meet:
– We expect AHL to touch new construction (NC) of 3.0 mn sq.ft. by FY17E but area booking (AB) may depend on demand. In FY15, the company had set a target of 2.5 mn sq.ft of area booking (AB) but was only able to achieve 1.8 mn sq.ft. As a result, we assume 2.43/2.83 mn sq.ft of revenue booking (v/s 4.04/4.08 mn sq.ft – AHL est.)
– We estimate revenue ~193% revenue CAGR during FY15‐17E (to ~Rs 8.9 bn), on the back of higher deliveries from Ashiana Town Beta, Rangoli Gardens, Ashiana Anantara, Ashiana Navrang, Ashiana Utsav (Lavasa) and Gulmohar Gardens.
– We expect AHL to report ~195% net profit CAGR during FY15‐17E (to ~Rs 2.9 bn with average margins of 32.7% (32.4% in FY15E).
– AHL’s cash rich status enhances its future growth ability (land acquisition) and also reduces business risk (slow demand pick‐up). Additionally, this will allow company to acquire land parcels at good bargain in case weaker demand scenario prevails for longterm.
At CMP of Rs.230, AHL is trading at 7.8x FY16E and 5.2x FY17E, EV/EBITDA multiple. With substantial chunk of ongoing projects reaching revenue recognition threshold, we expect sharp improvement in revenue and profitability from here‐on. We maintain our BUY rating with upward revision in the Sum‐of‐the‐parts (SoTP) based target to Rs.290 from Rs.202 on stock.”
Ashiana Housing has won the confidence of super-savvy investors like Prof. Sanjay Bakshi, Ashish Kacholia, Westbridge Capital/Jwalamukhi, Goldman Sachs, Brahmal Vasudevan’s Creador/ Idria etc.
Prof Sanjay Bakshi’s Valuequest India Moat Fund holds 1,74,925 shares in Ashiana, Ashish Kacholia holds 13,22,613 shares, Westbridge Capital/Jwalamukhi holds 26,42,587 shares and Idria holds 46,51,162 shares.
According to one school of thought, top-quality stocks should be accumulated aggressively during periods of slowdown because when the tide turns, these stocks are the first to get off the block and race ahead.
Daljeet is obviously a believer in that theory. You have to decide for yourself whether you want to follow that theory or not.