Wednesday, October 29, 2014

>Ashiana Housing Ltd. : CMP Rs.155 |P/E (FY15E) 19.9x | P/E (FY15E) 7.8x Target Rs. 202 (IndiaNivesh)

Investment Rationale
 Developer with Unique Business Model: Ashiana Housing Ltd. (AHL) is a unique asset light developer, with strong focus on pursuing Real Estate business in Tier II and III cities. AHL has unique business model, (1) where land cost as % of construction cost is lesser (vs. their listed peers), (2) does not build huge land banks, (3) does in-house construction as well as sales, & (4) consistently explore the alternative of deploying lower capital across projects. This asset light strategy and focus on cash flow generation has helped AHL remain debt free and experience above industry level Internal Rate of Returns (IRRs) of >30% across most of the projects.

 Highest Return Ratios in the Industry: AHL is the only listed developer, which has consistently maintained >25% RoE as well as RoCE for last few years (with exception of FY13 & FY14). Sudden drop in FY13-14 return ratios is owing to company’s strategy to shift its accounting methodology. With most of the ongoing projects reaching completion, we expect AHL to report FY16E RoE and RoCE of 35.0%, each.

 FY15-16E to see strong earnings growth: AHL is likely to report ~149% top-line CAGR during FY14-16E (to ~ Rs 6.9 bn), on the back of 3 projects entirely getting completed (Tree House, Utsav and Anantara) and some phases of remaining 7 projects getting completed (Ashiana Town, Rangoli Gardens, Aangan, Gulmohar Gardens, Navrang, Vrinda Gardens, Dwarka and Umang). We expect AHL to report ~192% PAT CAGR during FY14-16E (to ~Rs 1.8 bn; PAT margins would expand from 19.8% in FY14 to 27.1% in FY16E). 

With substantial chunk of ~6.8 mn sq. ft. of ongoing projects reaching revenue recognition threshold, we expect revenue visibility to sharply improve from here-on. With debt free balance sheet, at CMP of Rs 155, AHL is trading at FY15E and FY16E, EV/ EBITDA multiple of 17.6x and 5.7x, respectively. We have valued AHL using Sum-of-the-parts (SoTP) basis to arrive at FY16E based price target of Rs 202.