The stock of Ashiana Housing has rallied nearly 150 percent this year. Religare has initiated coverage on the stock with a 'buy' rating and a March 2016 price target of Rs 245 per share on the back of ‘very attractive’ product portfolio.
Speaking to CNBC-TV18, Varun Gupta, whole time director, Ashiana Housing says the company is looking to launch projects in Sohna near Gurgaon soon.
The realty firm has revenues worth Rs 650 crore that will get recognized soon, says Gupta. The current average realization of the company stands at Rs 2,500-3,500 per sq ft.
Ashiana Housing expects a 20 percent return on equity (RoE) in 2015.
Arun Aggarwal of Religare capital also contributed to the discussion.Below is verbatim transcript of the interview:
Q: What is it that you discovered in Ashiana Housing which has lead you to track it this closely now?
Aggarwal: As far as Ashiana Housing is concerned, there are two-three things which we liked about the company in the current backdrop.
The product portfolio is attractive; they launched properties in sub Rs 55 lakh bracket, the quality is pretty good, the brand is strong.
If you look at the balance sheet the RoE profile comes out strong at 35 percent odd. Therefore, on the net-net basis considering the kind of product that they are working with and the kind of product that they are developing - the volume growth should happen.
However, further to this the company is looking to expand its presence into few more cities and expansion of the operations in the existing cities. So that should ideally lead to growth in volume and hence we like the company from mid to long-term perspective.
Q: Which are the new geographies that Ashiana Housing plans to launch mid-income housing projects into? What kind of revenue trajectory are you hoping to see? You are sitting on a base of around Rs 110 crore for FY14, so by the end of FY15 where do we expect Ashiana Housing to close the year with in terms of revenues?
Gupta: In terms of expansion Sohna near Gurgaon is the next location that we are hoping to launch. We have a joint development agreement already signed, license is in place and remaining approvals are in working progress. So as soon as they come in – that will be the next city that will get operational.
We are also in active negotiations in couple of more cities to get them on board as well and so within the next couple of years we should have one more city operational after this.
In terms of revenue growth one of the thing that has happened is we had some accounting changes which lead to depressed revenue recognition in the last year and it should improve.
In the last financial year we had value of area booked nearly Rs 650 crore and as we go forward a lot of that revenues which will get recognised. FY16 should be a good year. I wouldn’t like to give any revenue estimate on it directly but Arun would have put something in his report.
Q: Have you put forth any number?
Aggarwal: If you look at the balance sheet then for the last three years the company had advances of Rs 250 crore plus and most of those will have to come as a revenue recognition in the next two years. So from profit after tax (PAT) and return on equity (RoE) perspective we are looking at a significantly high growth.
I am expecting about Rs 70 crore odd of PAT in 2015 and about equivalent or slightly higher growth in the next three years. So net-net from RoE perspective as well I am looking at about 20 percent odd RoE in 2015 and about 35 percent odd RoE in 2016.
Q: What are the key risks that you see for Ashiana Housing?
Aggarwal: The key thing to growth will be to expand into new cities and acquire new land or projects in the existing cities for Ashiana. So that would be one key area which would be important for sustenance of growth perspective. The second thing would be the overall macro environment and the industrialisation growth that we see in those cities. These are the two key risks which need to be taken care of.
Q: What kind of ballpark prices and realisations are you looking in some of these markets that you currently operate in and in new markets like Sohna, Gurgaon?
Gupta: In general our projects right now are within Rs 2,500 to Rs 3,500 per square foot pricing, some projects are little higher and even projects which are lower than Rs 2,500 barely that’s the ballpark figure that we are doing with an average sales price of about Rs 3,000 on a waited average basis across the company. The Sohna project will be higher with realisations of about Rs 5,000 and plus.
Q: Apart from entry into Gurgaon, you are looking at a lot of south-based projects as well. Take us through the pipeline there, maybe not in this year maybe in FY16, what kind of projects you are looking at, which are the states that you would target and by when can we expect any announcement?
Gupta: We are actively looking at Chennai in south and hopefully we will have announcement on the land front within the next six to nine months and then we will start the process for approvals and accordingly launch the projects there.
In other cities we are also been actively looking in Gujarat where we have launched a project in Halol where we can expand further but we are not as clear as to what city in Gujarat we will target right now. Therefore, it’s a little further away.
We have signed off on a land parcel in Kolkata two-three years ago which was not moving because of approvals. We have got in some indications that approvals should come in there as well over the next 12-18 months.
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