Thursday, 17 July 2014

Ashiana Housing Limited: Opportunity For "Real" Gains Through Differentiated Business Model

Since my last post in mid march, the market has briskly moved upwards and sentiments have changed dramatically. Many market players and analysts have proclaimed that the "decisive victory" for the BJP led NDA in general elections is going to be the game changer. It is felt that the new government will usher in the "directional" changes for Indian economy leading to structural bull market for many years to come. This "optimism" has clearly reflected in the way market has behaved since May 16. In last 4 months, Indices have increased by 20% and broader market has outperformed indices by significant margins. Personally, I do agree that there are some palpable green shoots on number of front and pro-business and stable government can bring the "growth" back to Indian economy. However,at the same time I also believe that it is still too early to treat the current economy and business environment as "clear sky"!

For a bottom-up value investor, the market gyrations are less relevant though rising market does pose a challenge of "bargains" suddenly disappearing from the horizon! I am sure like me, many of you would have given a pass to some high quality businesses because of the steep valuations or would have stretched "paying up for quality" theory to the extreme for justifying the "buy" decision at high valuations. However, in this market it is increasingly important to focus on "value" and not get carried away by various "rationales" offered by number of market participant for paying up! In this market and with current valuations, it is important to recognize the fact that one may not encounter the opportunities to make 5-10 baggers in 3 years like it used to exist 3-4 years ago in businesses like Mayur/Cera/Atul Auto and many others. The prudent approach should be to invest in companies with strong, scalable and differentiated business models run by efficient and ethical management by paying up "fair value". In numerous companies that I have analysed in the past 3 months, I have identified 4-5 such companies which fits the bill in my opinion. In this post, I am going to talk about Ashiana Housing Limited which belong to real estate sector and in my opinion has sustainable, scalable and differentiated business model. The company is also available at decent valuations, making it all the more interesting. 

Ashiana Housing Limited:

I must admit that I too fell prey to stereotyping real estate companies and ignored AHL in spite of AHL popping up in the my stock screener number of times in last 3 years. However, once I completed my analysis recently, I realized how far the realities can be from stereotypes! I have no hesitation in saying that AHL's annual reports are the best amongst the ARs that I have come across so far. They provide clear  and accurate picture about the dynamics of the business and substantiates the same through enough information to validate what they tell about business. Management clearly articulates the risk and limitations while defining the way forward with clear road map. Even if you decide not to move ahead with further analysis of the company in this article, my sincere request to you is to read the ARs once to understand, what it takes to provide holistic and accurate perspective to shareholders about the business!  Now let's talk about the business.