Varun Gupta, Whole Time Director, Ashiana Housing Ltd., talks about March quarter results, booking and demand situation, ongoing projects of the company, performance outlook, impact of cement price rise, the status of ongoing projects, capital requirement and innovative concept for projects among others during a candid chat with Swati Khandelwal, Zee Business.
Q: Ashiana has posted weak results for the quarter ended March 31, 2021. What are the highlights of the quarter and what led to this weak performance?
A: The reported revenue and profit depends on the deliveries of the flats that are delivered. It is reflecting the projects the company was constructing and selling three years ago. They are not reflecting the bookings of this year because bookings are like taking orders and deliveries will happen later. So, the results are weak because two years back – i.e. before the financial year 2019-20 (FY20) – in FY19 and FY18, there was a slowdown in the company’s sales, so the sales were low and its reflection is coming now, lower deliveries, therefore, losses in that quarter. But said that, the fourth quarter has been a pretty good quarter for the company and we have sold products worth around Rs 299.69 crore, across our projects. Our net cash flows have been good and our operating cash flow was Rs 67 crore. Pre-tax operating cash flows – in a little bit modified version of the AS and that modified statement is Rs 67 crore of cash flows. So, actually, the operating business of the company did very well in this year and the quarter.
Q: The booking was higher in this quarter from 3.57 lakh square feet to 8.30 lakh square feet. Is it due to the launches in Jamshedpur and Jaipur or something else?
A: Larger driver is the launches of Jaipur and Jamshedpur as the response for the projects were quite good. So, that drove the bookings upward in this quarter. But the first nine months of the last month, three quarters of the last year, the demand was robust across projects in general. Overall, it was a good time for the company and I think for the real estate industry in general with high demand for homes in the last nine months of the last financial year.
Q: Geographically which market is performing better for you? Going forward, what is your outlook performance and demand wise and where you are more bullish and what returns are you expecting?
A: All markets are doing reasonably well particularly Jaipur and Jamshedpur remains strong markets for group housing. In Chennai and Bhiwadi, we see very strong traction in senior living, which is turning into an important segment for the company overall. Our first target is to move into a double-digit return on equity preferably into the teens. I am quite confident that in the financial year 2022-23 onwards, we will start hitting the double-digit return on equity and moving into the teens.
Q. There has been a significant increase in cement prices in the last few quarters. Has the raw material prices impacted your business? How are you handling the current situation?
A: Input cost has increased but I think that the selling price will increase faster going forward. Our view is that the real estate price hasn’t increased over the years, it has been 6-7 years since which the real estate prices have not moved up although the salary and income have gone up, while the interest rates are at an all-time low. There was a supply glut in the real estate homes, which is ending. So, I can see that in the home prices will continuously increase quarter-on-quarter for the next four to six years. Therefore, to me, I am not as worried about the input cost from the margin perspective because we see a sale price expansion to be better.
Q: What is the status of your ongoing and future projects? Also, recently, you have acquired a land parcel in Gurgaon. So, can you provide us with a sense that by when a project will be seen there?
A: From the perspective of a future project, we are working on four key future projects right now. One in Gurgaon and it will launch this year in nine to 12 months from now. We are working on two projects in Pune of which one is a regular housing project and one is a senior living project. We are also bringing a senior living project to Bhiwadi. So, the company wants to launch these four projects in the next 12 months. In these projects, the company will have a sales capacity of around 50 lakh square feet and they will be priced well. So, they will add to a significant chunk in the revenues and profitability. Other than that all current projects are keeping and doing well across, as I said, Jaipur, Jamshedpur and the senior living project in Chennai and Bhiwadi are doing well. One project is running in Gurgaon’s Sohna region, where the margin pressure is quite high and we are not earning there but now sales there is a sales traction in the region, so we expect a recovery and take out our capital quickly so that we can redeploy as well where we make profits. So, that is the game plan right now.
Q: What is the capital requirement for over the next one to two years and what arrangements have been made for the purpose? Also, tell us the financing situation for the company and what are the debt levels and what are the plans to reduce it?
A: We are net cash positive and our net debt is zero, so, we are in a very good situation from that perspective. So, we don’t have any liquidity issues or debt reduction targets at this point in time. When it comes to financing, we acquire the projects in two ways:
In joint ventures, we enter into revenue share and area share arrangements with the landlords and capital requirement is very low there. It can be funded through internal accruals.
In Gurgaon, we have acquired projects on an outright basis and for this, we have a platform tie-up with the international finance corporation, where they provide a substantial part of the capital that is required through the issuance of unsecured non-convertible debentures. So, they have financed Gurgaon in this manner. Whatever, the outright projects we will do, they can provide, we still have some lines left and they can provide capital for future projects.
Q: You have talked about the four projects but overall what are the plans to acquire more land parcels or some joint ventures? Is there any more geography where you are thinking of acquiring the land parcels?
A: Currently, we are focusing only on NCR, Chennai, Jamshedpur and Jaipur for new lands and we are at active discussions in all these markets. I hope, we in the next 12 months will do maybe three to four more transactions.
Q: What are your targets for topline, bottom line and margins over a period of two to three years? Also, do you have any international plans and you want to explore?
A: We do not have any international plans. We are focused on India and India has a very large opportunity and there is no need to see somewhere else. It is good to focus on this opportunity and we are very bullish that the coming time will be great and conditions will be fine. On topline, margins and profits it is simply that those are derived numbers and internally the company has set a target on return on equity, which requires profit and a topline that can move a little bit but we have an entire focus on equity overall. I think, if we have to move into a double-digit ROE then we will have to operate in about a 600-700 crore topline with similar mid teen’s net profit margins. So, that is the aspect at which we are really looking.
Q: Is there any possibility of improvement in the margins because of the demand for properties and the kind of houses people are now opting for especially post-COVID environment? Also, tell us the ticket size where the demand is more and is there any change in consumer behaviour?
A: I have already talked about the margins that we are expecting. There is a lot of margin expansion in our company because that is a substantial degree of operating leverage. Our fixed costs will not increase as and when the turnover comes in the gross profit will effectively flow into profit before tax. To that extent, therefore we see improvement in margins to happen just because of share expansion. So, our margin will increase due to this factor.
Secondly, in consumer demand, we have noticed that people need big homes, so the average ticket size for us which was around a little less than Rs 40 lakhs earlier is moving closer to Rs 45 lakhs and upwards. Some of them are driven by extra areas and higher sale prices on a per square basis. I think both of those will continue and people will invest in good and big houses as they need them. At the same time, along with need, there is affordability that they can buy because again house prices at an inflation-adjusted basis are at an all-time low and interest rates are at the all-time low and salaries of people have improved over the last 6-7 years. So, going forward, the home prices should improve and increase, therefore our margins should also improve.
Q: As you are coming with a senior living concept are you coming with different innovative ways of community, if yes, which kind of projects we can see coming from your end? What will be the split between residential and commercial projects?
A: We are not into commercial and whatever commercial will be done will come as a subset of the residential project in form of the shops that we make. Primarily, our works will constraint to residential projects. From innovative concept, one innovative concept is that we have come up with Kid Centric Homes, where we are designing and making facilities, where for development of children – when I say children, it means anywhere starting from the age of 2 to the age of 18 – there learning, for spending constructive time, we have planned many facilities and services and have already implemented it in three projects. We are also planning the fourth project of Gurgaon in a similar manner, where the concepts will be innovative on that nature so that children should spend little time on the screens, in terms of video games, TV and mobiles, and spend more time constructively whether in sports, curricular activities and group activities so that there is a good personality and mental development among them. So, that is one thing that we are doing. Secondly, we have a very innovative programme called Ashiana Super Malls, which runs in all of our residential projects whereby we provide a platform for typically the women in the project most of them housewives to showcase their skill, nurture their talent and create a mark in a project. Along with that, uplift the livability and community of our projects and enrich the life of the entire project. We have been running that programme also and I think it is a very very innovative programme, which is available only in Ashiana projects because it is run through our maintenance function and facility management.
Source : Zee Biz
