Ashiana Housing: Sell. Too far, too fast

The stock of Delhi-based property developer Ashiana Housing has been on a tear, tripling in price over the last year, compared with the 27 per cent gain in the BSE Realty index. The company, raising ₹266 crore in February through two different deals, added to the rally with the stock price crossing ₹300 last month. Ashiana’s strength in Tier-2/3 cities, brand equity in the growing senior living market, as well as its strong debt-free financials have helped hold investor interest.

But it may be time to sell the stock now. One, despite some moderation in price recently, the stock is not cheap.

Its current price of ₹242 discounts the company’s trailing twelve month’s earnings by 112 times, compared with its three year historical average of around 10 times. The premium does not seem justified given that the company’s sales bookings and average sales price this fiscal are lower compared to the last year. Sales and earnings may not pick up sharply enough in the near term to justify the high valuation. Also, the company’s earnings will be diluted by around 10 per cent after the recent Qualified Institutional Placement (QIP).

Growth in Ashiana’s primary business — developing middle income homes in smaller cities such as Bhiwadi, Jaipur and Lavasa — is slowing. The company lowered its sales guidance to 2.05 million square feet (msf) for 2014-15 from its earlier estimate of 2.4 msf. This is lower than the 2013-14 bookings of 2.2 msf.

Ashiana has so far delivered around 10.7 msf across 29 projects. It is currently developing 13 projects totalling 6.4 msf and three senior housing projects. The company has a strong pipeline of launches in its existing locations such as Jaipur, Neemrana and Halol.

It plans to use the funds raised recently to acquire land for future developments and has entered into a joint development agreement to foray into Chennai. While these launches would help sales, the company recognizes revenue only when the project is completed.

So, while cash flows may improve, earnings from these new launches may kick in only after a few years.

Besides, sales in its current projects, especially in Jodhpur and Lavasa, have been sluggish.

Cash collection from its existing projects also dropped to ₹140 crore in the December 2014 quarter from ₹454 crore in the December 2013 quarter. Besides sale area, the company also faces price pressure. Average price realisation for its homes dropped to ₹2,871 per sq ft in the December 2014 quarter from ₹3,340 in December 2013.

In its Treehouse Residences project in Bhiwadi, over half of the completed saleable area remains unsold as of December 2014. High inventory build-up may impact the company’s ability to raise prices.

Revenue in the nine-months ended December 2014 was ₹74 crore — a 13 per cent decrease compared with the same period in 2013-14. Net profit dropped 10 per cent to Rs 17 crore.

Ashiana has very low debt and its debt-to-equity ratio is near zero. The company recently raised ₹200 crore through the QIP. Promoter holding has been reduced to 60 per cent after the QIP from 67 per cent.

If cash flows do not improve, the company may have to go for higher debt.

COMMENT NOW