Equitymaster Agora Research Private Limited

Independent Investment Research

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Top Funds Have Increased Stake in This Real Estate

Company!
Welcome to the Ninth issue of Smart Money Secrets!

First, let us wish you a happy and a wealthy new year...

Markets across the globe are on a row with headline indices making new highs. Specially in India both Nifty and
Sensex are hovering on life time highs.

While the overall markets look very expensive, it is very difficult time for picking stocks as the risk return reward
looks skewed.

But our thrust is to find best possible opportunities in every market scenario by following smart money across the
spectrums.

There are many ways in which we track smart money in any stock.

One is, of course, to closely track the actions taken by many of the super investors we follow. This could either be
through bulk and block deals. Or, it could be through an increase in the stake of a company stock the super
investor already owns.

We keep a close eye on what promoters are doing too. They are the 'insiders' in a sense; if they buy more of the
stock of their own company, then that is a positive indicator.

But, other than the promoters and the 40 super investors we track, we also equally interested in what mutual fund
houses (funds run by decent fund managers with a long-term track record) are doing.

Because to us, if mutual funds and/or any other funds for that matter are buying stocks, then it is a strong
indicator that smart money is being invested as well.

Mutual fund houses, at the end of the day, are led by professional fund managers, who have a mandate to make
the best possible returns, especially in an industry which is highly competitive. This means scouting for the best
possible stocks that these funds can pick up a stake in.

Infact, a lot of the super investors have their own funds and pick up stakes in companies through those funds.

The stock we are covering in this month's edition--Ashiana Housing--has seen a lot of activity by mutual funds in
the last few quarters.

DSP Blackrock Micro Cap Fund, under the well-known and established DSP Blackrock umbrella, has maintained its
stake in the company over the last many quarters.

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In addition to this, in the December 2017 quarter, two mutual fund houses picked up stake in the company for the
first time. These are none other than ICICI Prudential Balanced Fund and SBI Small and Midcap Fund.

With the introduction of RERA (expected to bring more transparency to the real estate sector) and the fact that a
serious and strong player like Ashiana will benefit from it, clearly, a lot of these funds are interested in the
business and its stock.

Here's more on what makes the company such a compelling case...

The Best Player in Real-Estate Sector Stands to Win from Sector Consolidation...
One of the best ways to pick a strong company in a cyclical sector, such as real estate, is when it is going through
a multi-year downturn.

However, if the downturn remains for say five years, is it wise to hold on to a business and feel the pain for such a
long period.

How does one find out that the cycle is about to turn?

If we go by a wonderful book on capital cycles, 'Capital Returns' by Edward Chancellor - The answer lies in finding the
supply side of the industry.

'Capital Returns' is a compilation of the letters written by Marathon Investment Management (to its clients), which,
over the years, has been a pioneer in understanding and betting on capital cycles across industries.

Consider this example: Company A in an indus/try X.

Now, A has over the years generated supernormal profits and returns; and with A being the only player in the
industry, the supply has always been short of the demand.

However, now looking at these supernormal profits, three more players B, C, and D enter the market (assuming
market has no barriers to entry). The market gets fragmented and the aggregate supply in the industry exceeds
the demand.

This results in lower offtakes and normalising of the returns. This starts the slowdown in the industry with supply
exceeding the demand. We call it cyclical downturn.

Now, poor demand and poor returns lead to production cuts, cost cutting, maybe even weak players exiting the
industry - in short, there is an obstruction on the Supply Side.

And when supply is obstructed and demand again exceeds supply - the cycle turns.

The players that survive the down cycle rise high when the cyclical upturn happens.

A similar situation exists in the real-estate sector in India. Ever since 2014, the real-estate sector has been on the
downturn.

After a dream run between 2008-14, the sector saw a huge supply across geographies. This resulted in not only
fragmenting, but also supply exceeding the demand, hence leading to the downturn.

Real Estate players suffered a lot with returns and profits going to multi-year lows.

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The sector faced some more heat due to demonetisation and GST. These events had a severe impact on demand
and the demand-supply gap widened.

With this cyclical downturn, the question remains, is this the right time to buy real-estate stocks?

The answer again lies in finding the supply side of the industry.

Well, with the Real Estate Regulatory Authority Act (RERA), 2016, the sector is all set to get consolidated with a
tighter control over new projects, moving money from one project to another among other things.

The Real Estate Sector has never had a regulator. The lack of one made the industry insidious with many unethical
and opaque players.

However, with demonetisation and now the RERA, these players are facing the heat and the industry is entering a
phase of reformation.

Thus, it is expected to dampen the supply with the wheels of consolidation in motion.

An opportunity is created in the sector, ushering the need to pick the best company in a cyclical sector.

We have picked Ashiana Housing Limited.

Ashiana Amarbagh, Jodhpur

Here's why...

Ashiana Housing Limited is a niche real-estate player catering to group-housing for middle-income and seniors-
citizen sections living in India.

It has an excellent brand recall in the geographies it operates on the back of the quality of homes it delivers and its
track record for beating the timelines in terms of delivering homes.

Ashiana has a niche asset light business model in an otherwise capital-intensive industry.

Now, the real-estate industry invests a lot in buying land parcels (capital-intensive).

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Ashiana treats land as raw material and buys land only to suffice the need for the next five-six years. The cost of
land never forms more than 25% of the total project cost.

Apart from in-house construction (no outsourcing, which is the general practice), Ashiana doesn't even tie up with
agents/channel partners.

In fact, it has its own strong sales team which understands its product better and doesn't miss-sell to customers.
Also, the in-house sales team helps the company tweak the designs/offer/pricing as per the customer response.

Ashiana doesn't stop here. It goes to the next level and provides the facility management to most of the projects,
which helps in improving customer experience and creating a feedback loop.

In fact, this is well reflected in numbers, as around 65% of the total sales comes from the customer referrals
(which are not incentive driven, rather experience driven).

Ashiana is the only fully-integrated player in the industry.

Surprisingly, the company has over the years created this fully integrated model without overtly leveraging its
balance sheet. It has always remained net-debt free with D/E ratio never touching 0.5 times (one of the few
companies in the sector to achieve this feat).

In fact, promoters hold around 61% in the company which shows that over the years promoters have not diluted
much.

Ashiana has a very strong balance sheet with a net-cash status and robust return-ratios (15 Y Avg. RoEs ~ 26%)
and has grown its top line and bottom line at a compound average growth rate (CAGR) of 26% and 34%
respectively, in the last fifteen years.

Is it attractive at this price, given that the sector is going through the downturn?

Read on to find out......

--

About the Company - Ashiana Housing

Ashiana Housing Ltd (AHL) was incorporated in 1979 and was one of the early entrants in the real-estate markets
of tier II cities such as Patna, Jamshedpur, Jaipur, and Bhiwadi.

The company has emerged as a leading developer in these markets. AHL has been following a conservative land-
acquisition strategy and has invested in tier II cities where the land cost is lower. Over the last few years, AHL has
ventured into new cities such as Halol (Gujarat), Chennai (Tamil Nadu) and Sohna (Gurgaon), Lavasa (Pune,
Maharashtra) and Kolkata.

The company's focus segment includes Comfort Homes (for middle income group) and Senior Living. It also
provides in-house maintenance to projects post-completion. AHL has developed ~211 Lakhs sq.ft. till date.

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 AHL's Journey Over the Years

AHL has received several accolades over the years and has been chosen as the "Forbes- Best Under a Billion
Company" for 2 times in a row.

How AHL Distinguished Itself from the Competition?

In public perception, the real estate sector is most unethical and notorious for incomplete projects and long delays
in handing over possession, enhancing super built areas and payments without the consent of buyers.

However, AHL clearly differentiated itself from the rest of the sector. Known for its quality and timely delivery,
"Ashiana" is a well-known brand in areas where AHL operates. AHL's mission and purpose are well aligned with its
brand promise of transparency and timely delivery.

For example, when the real estate sector witnessed a slowdown post-financial crisis, other developers extended
their development schedule, AHL pumped capital and made sure that all its projects were delivered on time which
shows the commitment and brand credibility.

AHL's Mission and Purpose Statement

MISSION - To develop & maintain homes which are functional, aesthetically pleasing and environment friendly
for the middle income group.

To create retirement communities where senior citizens can lead active, fun filled and a secured life with
dignity.

PURPOSE - To bring a smile of satisfaction on people's faces.

Brand Promises

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 What you see what you get

Timely delivery

Forever care

The real reason behind its success is its business model.

Asset-light Business Model

Typically, real estate companies are evaluated on the quality of the land bank they own. While most large
real estate companies buy the land upfront, AHL doesn't buy and store land for future development
purposes. From AHL's perspective, the land is just a raw material.

The company gets into joint ventures (JVs) with landowners to develop and sell in the next 3 years.

Although, when AHL buys land, the aim to develop it within the next 5-7 years. This helps in better
margins and less capital intensity in the business.

A comparison with Peers

Debt equity ratio 1.19 1.99 0.84 1.58 0.13

Asset Turnover Ratio 0.14 0.23 0.26 0.04 0.31

Source: ACE Equity

The superiority of this model lies in the fact that it does away with the requirement of buying a huge
parcel of land.

Many a leading real estate companies have been mired in debt-servicing problems because of expensive
land acquisitions. As a result, the land cost for AHL stands below 25% of its total cost.

This business model saves AHL from the trouble of borrowing the huge amounts needed to outbid the
other players and purchase land at sky-high rates.

Many companies that have fallen into the debt trap. On the other hand, AHL has avoided these land
deals. As a result, the company is net-cash.

In fact, this also helps the company to capitalize and buy land in the times when there is a correction in
the land prices (the current situation).

Integrated Business Model

In the real estate business, subcontracting is prevalent given a wide array of activities and lack of
expertise in niche construction activities. Whereas, AHL has developed In-house end-to-end construction
capabilities.

This ensures higher control over cost and quality and flexibility in execution in response to changing

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industry dynamics.

The company focus on the use of high quality and efficient construction methodologies & techniques to
help reduce time and cost.

Similarly, instead of a broker-driven model, AHL has in-house sales and marketing team who directly
executes sales to the actual end-customers.

The company believes that it is very important to have direct connect with customers to understand
their requirements.

This ensures greater ownership of customers and helps in selling projects to them in future. No wonder,
the company gets around 65-70% to overall sales from referral.

In-House Sales Expertise (Video) -

Source: Ashiana Housing Limited

Other than above, AHL also offers facilities management service through its wholly owned subsidiary
which indicates its long-term commitment to its built projects.

Furthermore, this service also provides inputs to AHL's development team, which can be incorporated
into future projects to improve quality. The facility management helps in creating a feedback loop.

Presence in the Niche Market

AHL started its operations from Patna and subsequently became the first organized player in
Jamshedpur market.

AHL has given the top metros in the country a complete miss. AHL focuses on affordable housing space
in tier-II and tier-III cities. Within, these cities, AHL is selective to enter only such cities which are fast
growing industrial hubs.

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It focuses on emerging cities which are either an extension of an existing big city or a village/town
getting developed into a relatively big city.

AHL's presence

AHL, currently, has a presence in the following geographies.

Bhiwadi (Rajasthan) - Fast growing industrial area with proximity to NCR/Delhi

Neemrana (Rajasthan) - Emerging Industrial hub in Rajasthan

Jaipur (Rajasthan) - Fast growing city and capital of Rajasthan

Jodhpur (Rajasthan) - A key tourist attraction and major city of the state

Jamshedpur (Jharkhand) - One of the oldest industrial town in India

Lavasa (Maharashtra) - Located at 1 hour distance from Pune. The city is first amongst the
planned modern city with all basic amenities

Halol (Gujarat) - A town located near Vadodara with large and expanding industrial cluster

Chennai - A good market for senior living.

Presence in Niche Markets Has Given Following Benefits

Less competition and able to dominate the market for a long period of time. For e.g. in Bhiwadi,
AHL dominated for more than 10 years as there was no competition present earlier.

Strong brand image in the respective markets due to a reputation for consistently delivering
high quality homes on/before schedule. It is perceived as a highly ethical company by
customers in the respective market.

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 Commands premium over its peers in most of its markets (commands 10-15% premium to its
peers).

Change in Accounting Methodology

In the real estate industry, companies normally follow "percentage completion" method of accounting.

However, AHL changed its accounting methodology from percentage completion method of recognition
of revenue to "contract completion method".

Here is the basic difference:

Under percentage completion method, the company recognizes the proportionate revenue based on
a percentage of completion for the construction of property. So, let's say a customer buys Rs 50 lakh
house. When AHL completes 10% of the construction, it books Rs 5 lakh revenues to its account.

In the contract completion method, AHL will recognize the revenue of Rs 50 lakh when it hands over
the possession of the flat to the customer. Till that point of time, money paid by the customer will be
treated as "liability" under Advance from Customer head.

The percentage completion looks like a logical method, but if one considers project delays which is
common in the real estate industry, this method becomes more aggressive.

For example, in case, the project is stuck after 50% of work completion, under percentage
completion, AHL would have booked 50% (Rs 25 Lakh) of the project as revenue. However, if the
situation is not resolved, AHL would be liable to pay Rs 25 Lakh to the customer.

This means, under percentage completion the company has overstated its revenue while
understated its liability.

Under contract completion, AHL would not have booked the revenue as the possession would not
have been given while the money received from the customer will be lying on the balance sheet as
liability.

Thus, a contract completion method represents far more accurate picture of revenue and liabilities
and truly reflects the risk involved in the business.

Here's what the management mentions in FY13 Annual report:

"This method of accounting more accurately reflects the assets and liabilities of the company.

This will make it easy to understand the operating cash flows of the company, which is one of the
most important parameter to appreciate the financial health of the company.

It also better reflects the margins of the company, as they are directly linked to the delivered homes
and square footage and not subject to future estimations of project cost."

This indicates AHL is doing the right thing and more importantly, the management is willing to take

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 short-term pains to ensure long-term gains for the stakeholders.

Business Operations

AHL focuses on Comfort Homes (aspiration homes) and Senior Living facilities. Apart from this, the company has
facilities management service which is more of a business support activity primary aim is to efficiently maintain
the projects and earn the goodwill of customers.

Business Segment

Details

Comfort Homes Housing for the middle-income group (Generally, ticket size per unit of INR 2.5- 7 million)
Located in upcoming industrial areas and towns (Tier II and Tier III) with population of >1 million

Senior Living Specifically designed for senior citizens

 Includes facilities like emergency response system, doctor-on-call and 24x7 ambulance services, etc.

Facilities Undertaken to support the residential projects

Management

Source: Company, Equitymaster

# Comfort Homes

AHL has a long track record of operations in the real-estate industry and its leading position in the residential mid-
income housing and senior living segment of tier II cities, especially in Jaipur, Bhiwadi.

Booking to Construction Ratio

Equivalent Area 0.5 0.7 0.9 1.0 1.1 1.5 1.2 1.8 2.3 2.3 1.7
Constructed

Bookings 0.4 0.7 0.5 0.7 1.4 1.8 1.9 2.2 1.8 0.9 0.7

Booking to construction 77% 91% 56% 69% 126% 122% 152% 124% 79% 37% 40%
Ratio (%)

Source: Company, Equitymaster

From the above table, average booking to construction ratio stood at ~88% in the last 11 years. However, in the
past two years, the ratio contracted by half and reached to all-time low levels of 37-40%. This led to an increase in
inventory.

AHL currently has around 1 million Sq ft of unsold inventory of old projects which are completed. Similarly, in
ongoing projects, the company has around 0.8 million Sq ft of unsold inventory.

Total Area to be Sold

Old 6.8 5.0 1.0

Ongoing 1.9 1.0 .82

Future 7.8

Total 15.4 6.1 1.8

Source: Company, Equitymaster

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Due to a buildup of unsold inventory, lower collections and a slowdown in sales, operational cash flows have been
negative for the last two years as AHL continued to construct as per commitments to ensure timely delivery to
customers. This led to blockage of funds.

What Led to Buildup of Unsold Inventory and Overall Slowdown in Sales?

Overall sectorial slowdown - The sales in the residential segment had declined over the past four
years. (FY14-FY17). After a dream run between FY09-13, the real estate sector got fragmented along
with prices going to un-affordable levels. This coupled with overall disruption in the economy
(demonetisation, GST, RERA, low job creation) led to overall slowdown.

Demonetization - The slowing residential sales momentum was further aggravated by demonetization
in November 2016.

It brought in a lot of uncertainty and the customer went into a wait and watch mode. The company
experienced a sharp decline in the site visits in the third quarter post demonetization.

Demonetization led to a sharp decline in sales (total area booked in the second half of FY2017 was 0.24
million sq. ft. compared to 0.48 million sq. ft. in the second half of FY2016, a decline of 50%.) and the
recovery post demonetization has been muted.

Just to give you a flavor on an average site visit to conversion ratio is 15-16% in a good period,
post demonetisation has seen the bottom. As of December 2017, the site visit to conversion ratio
stood at 5-6%.

Implementation of RERA and GST - Although, RERA is beneficial in the long run. However, in the short
to medium term, the impact of RERA is negative for developers. The impact of GST on AHL's margins will
be around negative 1-2% as in the current market, it is difficult to pass through input tax credit

This has resulted in lack of pricing power amid rising costs led to weak EBITDA margin. Similarly, AHL had to
borrow funds to complete existing projects. High inventory is clearly a concern in a slow market and has led to
blockage of AHL's capital.

How Will AHL Reduce Inventory?

As per the management, AHL and the real estate industry witnessed worst of time in the past few years.

However, the good part is that as and when the market turns around, the company will realize accelerated cash
flows by majorly selling ready to move inventory.

Moreover, to align construction with sales, AHL has been launching smaller phases to reduce construction
commitment and optimize its cash flow management. As per our meeting with the management, the following will
help to revive demand and reduce current inventory levels:

Reduction in Inventory Levels in Jaipur Market

Jaipur is the one of the biggest market for AHL. Jaipur represents a saleable area of 33% of ongoing
projects.

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Jaipur has an unsold inventory of ~5 million sq.ft. Jaipur market has witnessed a decline in inventory
levels from 20,560 units in Q1FY17 to around 18,000 units Q1FY18.

As per the management, if inventory comes down to around 10,000 units, demand will pick up and prices
will increase. It is important to note that AHL is among top 2 developers in Jaipur.

In fact, management indicated that Jaipur market is relatively better than the other markets with
demand being better. It expects the total Jaipur inventory will get exhausted in next four quarter.

Bhiwadi - Challenging Market but There Is a Ray of Hope

AHL was the first real estate developer to enter Bhiwadi market. Bhiwadi is in the Alwar district of
Rajasthan and is approximately 40 kilometers away from Gurgaon (Haryana).

Bhiwadi was unknown two decades back, but today is home to global industries. It is part of the 2021
National Capital Region Plan and Delhi-Mumbai Industrial corridor (DMIC).

Bhiwadi encompasses the manufacturing centres of Chopanki, Khushkhera and Sare Khurd. There is a
massive amount of additional industrial development activity planned by the Rajasthan State Industrial
Development and Investment Corporation (RIICO).

Companies such as Saint Gobain, Honda, Orient refractories, Jaquar Gillette, Lafarge and many other
prominent firms have set up their manufacturing hubs in Bhiwadi.

However, this market saw a significant slowdown in the past 2-3 years, which led to an increase in
inventory levels.

Bhiwadi has unsold inventory of 0.63 million sq.ft of old inventory and 0.17 million sq.ft of ongoing
project inventory. The company seems to have a very challenging task at hand to reduce inventory.

However, the following factors will help to reduce inventory levels:

Affordability Factor - Real estate projects in Bhiwadi are considerably cheaper when
compared to a Gurgaon or Delhi. The average ticket size of an apartment in Bhiwadi ranges
between Rs 2400 and Rs 3500 per sq. ft.

Whereas, homes are 2.5-3 times costlier Gurgaon and Delhi. The affordability factor has tilted
the odds significantly in Bhiwadi's favor. A lot that people are moving to regions like Bhiwadi
where the lands are available at affordable prices and make living easier for all the people.

Improved Connectivity - Bhiwadi's connectivity with Delhi and Gurgaon has improved
significantly in recent times. The Delhi-Jaipur National Highway (NH8) has taken the pain out
of commuting to Bhiwadi from Delhi-NCR. Not to mention, a new high-speed railway link
expected to be operational by 2023.

Office District Shifting Towards Bhiwadi - Apart from industrial and manufacturing hub,
corporate offices are slowly shifting towards Bhiwadi. Recently started Skyview corporate park
is an example.

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 Skyview Corporate Park to Bhiwadi - Distance: ~33 km

Skyview Corporate Park, Sector 74A, NH…

Bhiwadi, Rajasthan
More options

Map data ©2018 Google

Cyber City to Bhiwadi - Distance: ~49 km

Cybercity, DLF Tower 10th Rd, DLF Cybe…

Bhiwadi, Rajasthan
More options

Map data ©2018 Google

Skyview corporate Park -33 Km away from Bhiwadi Whereas, Cybercity, corporate park in Gurugram
(considered one of the largest hubs of IT activity in Delhi-NCR) is around 49 km from Bhiwadi. The trend
in shifting towards Bhiwadi will drive real estate demand going forward.

Reduction of Inventory levels in Gurgaon

In 2014, AHL acquired land in the South of Gurgaon and started its operation in 2015. Since AHL is a
strong brand in nearby Jaipur and Bhiwadi market, the company benefitted in the Gurgaon market.

However, Delhi and Gurgaon region has seen maximum inventory levels in India. AHL has ~ 0.25 million
sq.ft of inventory in Gurgaon market.

Nevertheless, in Gurgaon, peak inventory levels of around 35,000 units in Q4 of 2014 reduced to ~31,000

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units in Q2 of 2018. As per the management, if inventory comes down to around 20,000 units, demand
will pick up in this region as well.

Tailwinds from Policy Support

The government has been very aggressive in regulating the real estate industry and has started a slew of
initiatives to revive the demand which will help to revive demand.

Infrastructure status to Real Estate Sector - In the Union budget 2017-18, the government
has awarded infrastructure status to the affordable housing. Infrastructure status will lead to
lower cost borrowing for the sector and faster approval of the projects.

Tax on Long-Term Gains - The holding period for long term has been reduced to 2 years from
3 years This would spur the investment demand in the real estate.

Benefit on the Unsold Inventory - No notional rental income for first one year. It will give
some breathing time for developers to liquidate inventory.

Tax Relaxation on Joint Development - Capital gain will be attracted only after the
completion of the project, rather than at the time of transfer of the and at the time of
commencement of the project.

This will reduce litigation on the point of taxation for landowners and will provide an impetus
to the execution of more JDAs in this time of cash crunch faced by the sector.

Credit Linked Subsidy Scheme for Middle Income Groups - Under PMAY the government
has extended the coverage to bring middle-class population with an annual income of below
Rs 1.8 million under the interest rate subvention.

According to the Credit-Linked Subsidy, which is a part of the PMAY scheme, middle-income
groups with incomes in the eligible range will get an interest rate subsidy of 3-4%.

Change in the Definition of Affordable Housing - The government has increased carpet area
for the houses to be qualified for affordable housing.

In the first middle income category (Rs 0.6-1.2 milllion/annum), the carpet area was raised
from 90 to 120 sq. m (968 sq. ft - 1184 sq. ft). In the income category of Rs1.2-1.8
million/annum, the carpet area was increased from 110 sq. m to 150 sq. mt (1291 sq. ft - 1614
sq. ft)

The housing shortage in India is pegged at 20 million units and the government has recognized the need
to fill the gap in urban housing. The government's financial and policy thrust, regulatory support, rising
urbanization, and increasing affordability will help the sector to come out of the ashes.

Apart from above, other factors such as 13-14% correction in real estate prices (absolute
correction and time correction), increase in overall salary levels and interest rate reduction will
further help to revive demand in the real estate.

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An Update on other markets

Halol (Gujarat) and Jodhpur (Rajasthan) - Not a Focus Area Anymore

AHL has ~ 0.1 million sq. ft of unsold inventory in Halol and Jodhpur market. As per our interaction with
the management, the company is not keen to pursue new projects in these markets due to:

Lack of demand and market depth in both the markets

Significant oversupply in Jodhpur market

Margin related challenges in Halol market.

Jamshedpur - Has good potential

The company completed its first project in Jamshedpur in 1989. At that time, Jamshedpur had an acute
shortage of housing for the middle-class. AHL spotted this opportunity and made the most of it.

Ashiana has a very strong brand recall in the Jamshedpur market. In fact, as per the management
demand is not an constraint.

However, it has not launched nay project in the Jamshedpur market in sometime. One of the reason is
the availability of a big land parcel.

Ashiana's projects are known for a lot of open spaces, gardens and play area for children. This requires
relatively bigger land parcels. Now, the company has been scouting for appropriate land and finally it has
finalized two lands.

The two lands (7 acres and 3.5 acres) will be used to launch two new projects in the coming year. The
management is quite confident that these projects will have an exciting response.

Upcoming Projects Under Comfort Home Segment

Bhiwadi Surbhi 100% 0.04

Bhiwadi Tarang 100% 0.93

Bhiwadi Ashiana Gamma 100% 1.8

Gurgaon Anmol 65 % of Revenue Share 0.73

Gujarat Navrang 81 % of Revenue Share 0.36

Neemrana Aangan Neemrana 100% 0.40

Jamshedpur Anand 100% 0.68

Jodhpur Dwarka* Area Share 0.37

Jaipur Gulmohar Gardens 50 % of Profit Share 0.07

Jaipur Umang 100% 0.26

Jaipur Vrinda Gardens 50 % of Profit Share 0.79

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 Total 6.48

Source: Company, Equitymaster

Apart from above upcoming projects, AHL has ~3.0 million Sq. ft of land available for development in
cities like Jaipur and Kolkata. (One land ~5 million sq ft is under litigation)

#Senior Living

Ashiana came up senior living project in 2007 in Bhiwadi. It is a lifestyle product for seniors, residential
communities serving the three major needs of senior citizens: basic medical facilities, security and
companionship.

Active Senior living is a growing concept in India. A general impression when one hears about senior living in India
is of 'Old Age Homes'. However, senior living is quite different and novel concept.

Given the rising senior population (expected every 8th citizen will be above 60 years by 2025 - Source: Census of
India) and no social security framework in India. Active Senior living is coming out as one of the viable option.

In fact, there are two categories of senior living:

1. Independent Living (The properties are constructed keeping the senior citizens in mind like skid-proof tiles,
ramps for wheelchair access, grip rails, panic buttons etc

2. Assisted Living (for older seniors or with some permanent ailments - in addition they have services like daily
care etc).

Active Senior Living (Video)

Emergence of nuclear families and growing urbanisation has given rise to several townships that are developed to

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take care of the elderly. This segment is expected to grow significantly in future. AHL derives ~15% of the revenue
from this segment.

AHL has successfully implemented this concept in its existing Senior Living communities at Bhiwadi, Jaipur and
Lavasa, where more than 1,500 residents are living a vibrant life. The company has come up with 5 Senior Living
project, which is in Chennai.

AHL had a good start in its Chennai project. The company witnessed around 64% booking in ongoing project,
which is expected to get completed by 1QFY19.

Airhant Foundation & Housing is a JV partner in Chennai project. Going forward, the management expects things
to improve in Chennai from H2FY18, as it is a very good market for senior living.

Upcoming Projects Under Senior Living Segment

Bhiwadi Nirmay 100% 0.56

Chennai Shubham 73.75 % of Revenue Share 0.80

Lavasa Utsav 100% 0.08

Total 1.46

Source: Company, Equitymaster

Comparison with competitors

In real estate, it takes years to complete one project. The accounting for inventory, sales and costs incurred are
not the same as for a manufacturing or a service company. So, comparing sales growth with peers may not be
worthwhile as sales growth will be lumpy.

Instead, the effective way to compare is the velocity of sales or inventory turnover. A low turnover implies weak
sales and, therefore, excess inventory. The speed with which a developer can sell inventory is a critical measure of
business performance.

One of the most common mistake developers make is over-paying for land and, hence, they are reluctant to get rid
of their inventory because they cannot accept lower profits or losses and move on.

They will suffer from a lower ratio of sales to average inventory. Because of the lumpy nature of sales, we have
used six-year average of sales/average inventory.

Similarly, we have taken ROCE (Return on capital employed) as a measure to check whether the developer is
making good returns on the invested capital.

A Comparison with Peers

Ashiana Housing 60% 19.2 13.3

DLF 48% 6.6 7.8

Sobha 67% 12.4 8.2

Godrej Properties 38% 7.4 6.7

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 Parsvnath Developer 19% 3.3 1.2

Oderoi Realty 42% 12.7 9.2

Source: Ace Equity

From the above table, AHL scores in inventory turnover, as well as return on capital employed. This indicates AHL's
operational efficiency and prudent capital allocation. This is on the back of lower land cost as a percentage of
construction cost, executing projects on a JV basis (on revenue share/profit share with landowners) and quick
turnaround.

About the Real Estate Industry

In India, real estate is the second largest employer after agriculture and is slated to grow at 30% over the next
decade.

The real estate sector comprises four sub- sectors - housing, retail, hospitality, and commercial. The Indian real
estate market is expected to touch US$ 180 billion by 2020. The housing sector alone contributes 5-6% to the
country's Gross Domestic Product (GDP).

Real Estate Sector - An Overview

A Key demand drivers in residential sector

Increase in urbanization and the working population

Growing number of nuclear families

Rapidly growing middle class

High disposable income and aspiration levels

Easier access to finance and low interest rate

Fiscal incentives on both interest and principal payment for housing loan

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The real estate sector in India has been witnessing prolonged sluggishness over the last 6-7 years. Absorption of
new homes in top 10 cities (Ahmedabad, Bengaluru, Chandigarh, Chennai, Hyderabad, Kochi, Kolkata, Mumbai
Metropolitan Region (MMR), National Capital Region (NCR) and Pune) has slipped at a compound annual growth
rate (CAGR) of 8% in the last six years.

The sector has witnessed a decline in the area booked and area launched over the last few years.

Nevertheless, India's real estate is going through a transformative phase on the back of reformative steps taken by
the government, such as streamlining approval processes, simplifying taxation (Goods and Services Tax), building
institutional capacity, and introducing urban planning and real estate-related reforms (e.g., RERA and Real Estate
Investment Trusts) undertaken over the past three years.

It is expected that the above policy reforms would lead to higher accountability and transparency and increase
efficiency in the sector. With these reforms, the government has opened plethora for the growth in the real estate
sector.

It is estimated that over the next five to seven years, India would require an investment of Rs 260 trillion to meet
the several development goals such as 'Housing for All, 100 smart cities, Delhi Mumbai Industrial Corridors and
creating support urban infrastructure.

Regulatory Reforms Transforming Real Estate

The Real Estate (Regulation and Development) Act, 2016 (RERA)

RERA is effective from 1 May 2017 and covers all the residential and commercial projects in every state. RERA is
aimed to protect the interest of consumers, promote fair play in real estate transactions and to ensure timely
execution of projects.

This is expected to increase transparency and accountability in this sector. It is anticipated that accountability
would lead to higher growth across the real estate value chain, while compulsory disclosures and registrations
would determine transparency. These two aspects are likely to lead to higher transparency.

Impact of RERA on the real estate sector

Industry consolidation- smaller players with a lack of strong financial and execution capabilities may
find it difficult to survive leading to consolidation.

Increased project cost- registration with the RERA and insurance cost for construction and land title may
result in higher project cost.

Rise in cost of capital- the cost of capital may go up as developers need to fund the land and approval
cost through equity.

Increased project launch time- the project launch time may increase since a lot of time would be
invested in finalizing the finer details before a project launch.

RERA described as the 'short-term pain for long-term gain'. In the long term, the benefits of RERA are far more,
with the ability to transform the real estate sector in India. Key benefits include:

Higher transparency and governance

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 Enhanced confidence of investors

Adaptation of best practices and higher efficiency

Sector consolidation

Higher institutional funding

Goods and Services Tax (GST)

The Goods and Services Tax (GST) is a crucial reform for the Indian economy has been implemented in July 2017.
GST simplified a slew of indirect taxes with a unified tax. The tax replaced existing multiple cascading taxes levied
by the central and state governments.

The GST is expected to bring the unorganized sector under the ambit of taxation, which could help the Indian
economy to increase its tax base.

According to the GST rates, residential construction services, will invite GST at the rate of 12%, which will apply to
developers selling residential units before completion of construction to the home buyers.

Stamp duty will continue to be applicable, irrespective of whether the property is under-construction or
constructed, in the pre-GST and post-GST regime.

With above regulations and the current slowdown in the real estate industry will lead to increased consolidation in
the real estate sector.

The significantly competitive real estate sector is expected to become much leaner on the back of ongoing
consolidation via mergers and acquisitions, joint developments, joint ventures (JVs) etc.

Who Owns the Company?

Our love to find owner-operators is well known to our subscribers. What we mean by owner-operator setup is
owners who are involved in the operations of the business. This gives us the comfort on the incentives of the
owners.

Ashiana Housing was founded in 1979 by the late Mr Om Gupta. It is a niche player in the real estate sector
catering to group housing for middle income groups and senior living in India.

It has an excellent brand recall in the geographies it operates on the back of the quality of homes it delivers and its
track record for beating the timelines in terms of delivering homes.

The promoters hold 61.04% stake in Ashiana Housing. Of this, the three Gupta brothers together hold 59.34% stake
in the company, equally divided between the three of them.

The balance 1.7% stake is held by OPG Realtors Ltd. The promoters, over the years, have maintained their stake in
Ashiana Housing.

Promoter Shareholding Pattern

Vishal Gupta 13.71 13.71 13.71 13.71 13.71 13.71

Rachna Gupta 6.07 6.07 6.07 6.07 6.07 6.07

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 Ankur Gupta 19.78 19.78 19.78 19.78 19.78 19.78

Varun Gupta 19.78 19.78 19.78 19.78 19.78 19.78

OPG Realtors Ltd. 1.7 1.7 1.7 1.7 1.7 1.7

Total 61.04 61.04 61.04 61.04 61.04 61.04

Source: Stock Exchange, Equitymaster

Apart from the promoters, the following mutual funds have recently entered or maintained their stake:

DSP Blackrock Micro Cap Fund 1.24 1.24 1.24 1.24 1.24

ICICI Prudential Balanced Fund - - - - 2.21

SBI Small & Midcap Fund - - - - 2.2

Source: Stock Exchange, Equitymaster

Smart Money Invested

About the Owner

Ashiana Housing was founded in 1979 by the late Mr Om Gupta at a time when middle class families in India were
looking for good quality housing but were unable to do so because such homes were not within their budget
range.

Mr Gupta sought to change all that. Ashiana Housing was a product of his vision of creating a respectable
housing brand for middle class India.

This is what he once said:

These are not 'buildings'- these are homes for families. I want them to continue to be a source of pride and joy and to
help instil community feelings.

The company is now run by his three sons, managing director Vishal Gupta and his brothers Ankur (joint managing
director) and Varun (whole time director).

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What also makes Ashiana Housing stand out is that in a very risky industry such as real estate, the company
management is conservative as developers. This is encouraging because the management also believes in timely
delivery of projects. Further, it does not depend solely on a land bank, but instead relies on customer goodwill to
expand.

Over the years, it has acquired a reputation for delivering homes on time. It controls quality by managing a
project's facilities in-house instead of outsourcing them, and doesn't engage brokers to sell its units, preferring to
deal directly with potential buyers.

Closely Held by Owners

Does the Company Qualify on Equitymaster's Smart Money Score TM?

We believe, any good business needs to pass our checklist i.e. smart money score. You can find a detailed
explanation of what the smart money score in our guide. Smart Money Secrets - A Quick Start Guide.

1. Smart Money Invested - One of the important catalysts we look for in a stock is the smart money. Based on
the holding (higher the better) and our comfort with super investor we assign a rating on a scale of 10.

We also like to see either the super investor or the promoters of the company increase their stake in the
company.

In the case of Ashiana Housing Limited, Smart money is holding decent in the company with some good funds
holding around 7%. In fact, some of the good funds like DSP Blackrock microcap, ICICI Prudential Balanced
Fund and SBI Small and Midcap Fund holds around 5.6% in the company.

However, given the pro-longed in the slowdown in the markets Ashiana operates some of the super investors
have exited Ashiana in recent quarters.

But given the tailwinds the sector is about to witness and the constrain on the supply side by the advent of
RERA Ashiana stands to benefit in the long run.

Smart Money Investing big

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 DSP Blackrock Micro Cap Fund 1.24 1.24 1.24 1.24 1.24

ICICI Prudential Balanced Fund - - - - 2.21

SBI Small And Midcap Fund - - - - 2.21

Source: BSE Company Fillings, Ace Equity

Ashiana is a family owned business with majority of the ownership with the family.

The family owns around 61% in the company and has not diluted its stake in recent quarters (diluted some
stake in 2015 for expansion).

The fact that owners still owns 61% of the company becomes more important when seen with the fact that
the company has always been net-cash company.

In real-estate business one of the biggest constrain is the capital which is either infused by equity dilution or
debt raising. Ashiana has been very prudent in capital allocation with a lean balance sheet and high promoter
holdings.

Promoters Closely Holding the Company

Vishal Gupta 13.71 13.7 13.7 13.7 13.7

Varun Gupta 19.8 19.8 19.8 19.8 19.8

Ankur Gupta 19.8 19.8 19.8 19.8 19.8

Rachna Gupta (Wife of Vishal Gupta) 6.07 6.1 6.1 6.1 6.1

OPG Realtors Ltd. 1.7 1.7 1.7 1.7 1.7

Total 61.0 61.0 61.0 61.0 61.0

Source: Stock Exchange, Equitymaster

Keeping in mind that there is smart money invested in the company and strong hold of the management and
penalizing the company for the recent exits of some super investors (2 points), we assign a rating of 8 to
Ashiana Housing Ltd.

2. Business Quality - One reason that makes Ashiana Housing is a good bet for long term is the strength of its
business and strong execution capabilities it has portrayed in last two decades.

Indeed, Ashiana is the undisputed champion in the markets it operates. It is one of the dominant player in
group housing catering to middle income group of customers. The company specialises in identifying TIER-2
and TIER 3 cities which are on the cusp of rising housing demand.

It focuses on emerging cities which are either an extension of an existing big city or a village/town getting
developed into a relatively big city.

For instance, the time Ashiana entered its key market (Bhiwadi) it was a very small town with very remote
housing demand, however with industrialization taking place there, Ashiana was first to enter the market and

23
is still the largest player in the middle-income group.

Ashiana brand is well recognised and is a symbol of timely execution and delivery with the best quality. In
most of the cases the company beats the delivery timelines. This has helped the company to develop a very
strong brand which helps it fetch better pricing as compared to its competitors.

In fact, it is one of the few real-estate companies with a strong balance sheet and above average return ratios.

The company has carved niche for itself in otherwise fragmented real-estate sector by adopting differentiated
strategies in areas like acquisition of land, in-house construction (leading to better cost control), in-house
sales, facility management and first mover in active senior living among others.

It has been able to deliver affordable houses to middle income group on the back of an asset light model (not
banking land, rather treating land as a raw material). Also, the company by constructing in house has better
controlled the cost over the years, hence better profitability.

Further, the company has an inhouse sales team and it completely avoids middlemen (agents) and other
channel partners. This is essentially to avoid the miss-selling to its customers and command better margins.

Just to give a glimpse of Ashiana's brand re-call around 65-70% of the total sales are through customer
referrals and these referrals are largely experience driven and not incentive driven.

Business Quality

ROEs (out of 1.5) 26% 12% 1

ROCES (out of 1.5) 28% 15% 1

Total     2

       

Topline Growth (out of 1) 26% 16% 1

Bottomline Growth (out of 1) 34% 24% 1

Operating Profits (out of 1) 43% 21% 1

Total     3

       

D/E 0.1 0.1 2

       

Sales/Fixed Assets 4.6 6.1 2

Source: Ace Equity, Equitymaster

As can be seen, the company has a lean balance sheet i.e. net cash since inception. The company has always

24
 commanded better than industry return ratios and profitability growth.

One of the metric that is looked in the real estate company is sales intensity i.e. how much the company
generates on the existing assets base.

Since, it is highly capital-intensive business this metric is a good indicator of operating efficiency. Ashiana
scores very good on the indicator as compared to its competitors (second best) with an average sales/Fixed
Assets ratio of 4.6 times.

Having said that, although we expect return ratios to improve going forward, at present, the sector and
company is facing multiyear down turn with the sector in the doldrums which has resulted to lower offtakes
and hence lower profitability. This has led to historically low level of ROEs.

Even though we believe the subdued return ratios are more to do with the cyclical downturn and are about to
revive once the cycle turns, we penalize the company by one point and assign a rating of 9 on business
quality.

3. Competitive Advantage: One of the important factors super investors look for is sustainable competitive
advantages aka economic moats. They love to invest in companies focusing on widening of moats.

As discussed above the company has created a very strong brand when it comes to delivering quality homes
for both middle income and senior living.

So, what makes Ashiana Housing ltd stand out?

# Land Strategy:

One of the critical component of a housing project is the land. Location and Size of the land are very critical
for success of any project. This has led a common practise in the industry where real-estate players buy land
in bulk and keep a land bank for future projects. This makes business very capital intensive.

However, Ashiana has a different approach - rather than banking the land for future growth it treats land as a
basic raw material and acquire land only for the near-term projects (visibility of say 5-6 years).

The company treat land as stock in trade. Typically, a project takes around 4-6 years to get completed
(planning + execution). So, the company keep a land bank of around 6 years. Further, the cost of land in any
project never exceeds 25% of the total project cost.

This helps the company in two ways: 1) The company enjoys an Asset Light Business Model with low upfront
cost for future land; 2) It can survive better in the down cycles as the balance sheet is very strong (net cash),
in fact, it also allows the company to acquire lands aggressively when in the downturn (when prices are
subdued).

Apart from this, in the newer geographies the company enters, it enters with a Joint Venture partner (who
generally supplies land parcel to the company) which again helps it to maintain the asset light model - not
investing upfront in the land.

# Product centric Approach:

If we look at the real estate industry closely we find that there are broadly two approaches to operate for a

25
real-estate player i.e. Location centric approach and Product Centric Approach.

In Location Centric Approach a player dominates a market and provides multiple products like commercial,
residential, retail shops and Hotels etc.

However, in product specific approach a player provides same product in multiple locations.

Ashiana specialises in group housing for middle income group and active senior living at affordable prices. It
has over the years forayed into different geographies (started with Patna & Jamshedpur and now present in
Jaipur, Bhiwadi, Pune, Chennai, Halol, Jodhpur etc) and has created a strong brand.

We believe this shows the focus of the management and separates Ashiana from the rest of the players.

# In-House Construction:

One of the way to make a real-estate business asset light is to outsource the construction to third party.
However, Ashiana has over the years craved its own niche strategy to construction. Even though it has an
asset light business model (low debt and equity dilution) but it has a fully integrated in-house construction.

In fact, it has proved to be one of the competitive advantage for the company due to following reasons:

The in-house construction team delivers as per the actual requirements;

There is a better control over the cost and timing of the project (no unnecessary delays due to
outsourcing)

Flexibility tin construction activities - For instance, it is can adopt new technologies and techniques
at any stage of the project (which is not the case when it is outsourced as per the agreement).

The Phase wise construction helps in improvising on-going designs (which is not easy if
outsourced)

So, the land acquisition strategy helps the company to keep the business model lean and the inhouse
construction helps it to have a better control over the cost and timing which helps in better margins and
hence profitability.

# Inhouse Sales:

If you imagine buying a new house, the first person that comes to your mind is a real-estate agent. Real-estate
players rely a lot on agents to offload their inventory by providing them attractive incentives.

However, Ashiana do not employ any agent or channel partners to sell homes rather it has a very strong well
trained in-house sales team.

The sales team is rigorously trained to understand the requirements of the customers and are not provided
any extra incentives to offload to inventory. This is essentially to avoid the miss-selling of the product/home
to any customer.

The in-house sales team helps the company largely in three ways: 1) Removes the middlemen to sell homes -
better margins and profitability; 2) Avoid miss-selling to its customers; 3) On ground feedback that the

26
inhouse team brings to the project manager is acted on quickly (any change in design, pricing, value etc).

In fact, direct selling creates a direct communication from the company and higher referral sales (company
sales around 65% of the total sales via customer referrals).

Further, the inhouse sales team always try to identify actual users rather than investors. This is to simply
avoid people buying the house pre-construction and selling post-construction at a lower rate... i.e. it avoids
secondary market for any project units.

# Facility Management:

One of the challenges that real-estate players face is user experience. The brand in real-estate is largely
dependent on the customer experience both pre-and post-sales of their house. While many players provide a
hassle-free experience to their clients before the purchase of the house many fails to provide post the delivery
of the house.

However, Ashiana over the years realized that it is very important to improve the customer experience once
the house is sold to the customers and they live in the house.

So, to give its customers a hassle-free living, the company decided to foray into facility management (Ashiana
Maintenance Services Limited) and manages most of the properties it has delivered to its customers.

Even though the maintenance business is not that profitable, but it has helped the company to improve its
customer experience both in Senior living and Middle-Income housing.

This acts as a feedback loop for the company and helps in enhancing the brand. In fact, this is strongly reflected by
the fact that 65-70% of the sales are from customer referrals. Further, these referrals are not incentive driven, they
are experience driven.

# Active Senior Living

Active Senior living is a growing concept in India. A general impression when one hears about senior living in
India is of 'Old Age Homes'. However, senior living is quite different and novel concept.

Given the rising senior population (expected every 8th citizen will be above 60 years by 2025 - Source: Census
of India) and no social security framework in India. Active Senior living is coming out as one of the viable
option.

Active Senior Homes have facilities like Security Services, Cleaning and Maintenance facilities, medical cares
and meals. In fact, there are two categories of senior living:

Independent Living (The properties are constructed keeping the senior citizens in mind like skid-
proof tiles, ramps for wheelchair access, grip rails, panic buttons etc.

Assisted Living (for older seniors or with some permanent ailments - in addition they have services
like daily care etc). While the concept is new in the country, Ashiana has been one of the first player
in the country to launch its maiden senior living project in Bhiwadi. It has now forayed into Pune,
Chennai and Jaipur.

We believe the senior living market in India can be huge and with Ashiana being the first mover has an

27
 advantage over other players.

Even though company has a very niche differentiated model with quite a few competitive advantages over the
competitors the industry is fragmented and hence we penalize it by one point and assign a rating of 9.

4. Soul in the Game - The idiom of soul in the game stands for the owner operated companies i.e. companies
where owners and operators of the business are same. We believe higher stake and active involvement in the
business puts the incentives perfectly aligned.

So, we look out for companies owned and operated by good managers.

As indicated earlier Ashiana Housing Limited is owned and run by the Gupta Family. The promoter family
holds around 61% in the company.

The business currently is run by the second generation i.e. Mr. Vishal Gupta (Managing Director), Mr. Ankur
Gupta (jt. MD) and Mr. Varun Gupta (Whole Time Director). (See about the owner section).

Late Mr. Om Gupta started the Ashiana brand. He created a company with highest level of corporate
governance and transparency. The company is one of the few clean company in the real estate sector.

Consider these lines from FY12 annual report:

'The 'Advance from Customers' in the liabilities side and 'Inventories' in the assets side will let us help in ensuring
that the cash inflows from one project are utilized towards the cash outflows of the same project'

One of the biggest concern in the real estate sector is moving money from one project to another. RERA has
put an end to this money movement and every developer needs to maintain an escrow account for every
project.

However, Ashiana has been following the same practice since beginning. This shows the level of corporate
governance the company follows.

Further, in FY12-17, the total salary drawn stood at 6% of the total profits earned during the same period. In
FY17, salaries accounted for 8% of net profits which is very reasonable.

Also, we have gone through the auditor's report and Related Party Transactions; even though the company
has entered in some related party transactions, we do not find any material transactions which may raise
questions on the management integrity.

We believe, management has put its soul in the business. This is a kind of pattern our Super Investors look
out for. However, given the fact that management diluted some stake in FY15 we penalize the company by one
point and assign a rating of 9 on this parameter.

5. Capital allocation - One of the patterns our super investors and we seek for is the efficient capital allocation
by the management. The best way to evaluate this could be to look at both the sources and the application of
the funds by the management over a period.

Sources of Funds

By sources of funds we mean the money raised by the company to grow its business. Typically, there are three

28
big sources i.e. Equity Dilution, Raising Debt and Internal Accruals (cash generated by the business).

We love the companies with capabilities of funding their growth using cash generated by the business itself.
Further, if these companies are present in the industries with big market opportunity, sky is the limit for them.

In case of Ashiana Housing Ltd, in the period FY12-17, of the total funds raised by the company, over 50% of
the total funds were generated by the business. One should note that the range we are looking includes FY15
where the company diluted its equity (29%) which makes this number look lower.

Further, FY14-17 has been the toughest period for the real estate industry. We believe this shows the
robustness of the company's business model. This shows the growth has been funded by cash generated by
the business.

Sources of Funds over FY12-17

Application of Funds

After sourcing the capital, the next and most important aspect is the allocation of the raised money. We
believe generating cash from the business is not enough, it is very important for the company to deploy the
same in profitable ventures.

In the case of Ashiana Housing Ltd, around 51% has gone towards acquiring land and developing properties,
35% has gone towards investments.

One should note that the company has always avoided banking land (max 5-6 years land inventory) to keep
the asset light business model and optimally utilize cash when it faces cyclical downturn (like the one it is
facing right now).

29
 Application of Funds over FY12-17

We believe management of Ashiana Housing Limited has a very good understanding of capital allocation and
has always been prudent in allocating which is reflected in industry best return ratios and a lean balance
sheet. We, thus, assign a rating of 10 for capital allocation.

6. Earnings Quality - One of the key challenges while evaluating small and mid-cap companies is the quality of
their earnings.

The growth in the sales and profits should translate into cash flows for the company. There should be a good
comparison between the accounting and cash profits to understand the quality of the earnings.

One crucial tool to check the earnings quality is the proper analysis of the Cash Flow Statements (which many
people miss to look at).

Over the years, we have found a similar pattern in companies that were fraudulent or bankrupt or both in India
and abroad. The usual culprit in both the cases involved money stuck in their working capital which meant
accounting profits weren't converted into cash profits.

We have devised a simple way to inspect earnings quality of any company. We begin with cash flow from
operations. Divide it in two parts i.e. Gross Cash Flow from Operations (GCFO) and Net Cash Flow from
Operations (NCFO). The difference being the 'changes in working capital'.

As a thumb rule, for a manufacturing company NCFO as a percentage of GCFO should not be significantly
below sixty percent. This simply means ideally not more than forty percent of the money should be stuck in
working capital.

One should note that for a real estate company a modified cashflow should be looked at rather than reported
cash flow. A modified cash flow does not account for amount paid on account of future land acquisition. This
gives a true picture of the cash generated from the Ongoing Projects.

30
 We applied the same rule on Ashiana Housing Ltd and over FY12-17 this number on an average stood at 148%
which well above the sixty percent rule.

We also compare the net cash flow from operations with operating profits because theoretically they should
be close to each other. For Ashiana Housing Ltd both accounting and cash operating profits were close. In
fact, if we derive an average between FY12-17 operating cashflows exceeds the operating profits.

However, given the nature of the business the company has a very high inventory days and hence higher cash
conversion cycle of more than 500 days. Even though this is general nature of the business we penalize the
company on this front.

We also penalize the company on the cyclicality of the cash flows and assign a rating of 8 on earnings quality.

7. Scalability of the Business - Identifying a good business is one thing, identifying a good business with
potential to grow at decent rates for years to come is another. One crucial factor for a business is the size of
the market it caters to.

Ashiana is in the business of constructing and delivering homes for middle income and senior living. The
average price of Ashiana's house falls between Rs 3 million to 7 million. Even though it is not an affordable
housing player, its houses are quite affordable.

Rising urbanization (as per census now 31% of the total population is urbanized) has led to a dramatic
mismatch in the demand and supply for housing in India. As per 2011 census there is a shortage of around 20
million houses in India.

The current government in FY15 announced 'Housing for All by 2022'. The scheme also has a target of
building around 20 million homes by 2022.

Since inception Ashiana has delivered around twelve thousand homes which is 0.06% of the potential market
size.

Off course 20 million homes would include both low income and middle-income group but even if we assume
middle income would consist half i.e. 10 million this is a huge opportunity for real-estate players in India.

Further, Senior living is a $25 billion industry worldwide. In US, there are over 2000 senior housing projects
with over 500,000 residents.

As per 2012 census, in India around 100 million citizens were above 60 years and it is expected to reach 200
million by 2030 and 320 million by 2050. Currently, the demand for senior living homes in India is around
300,000 units.

Ashiana is one of the biggest players in the senior living business and has a first mover advantage.

However, currently the real-estate market is going through a cyclical doldrum and supply is ample yet the
offtake is subdued. Some of the reasons have been demonetization, pricing mismatch, GST and the advent of
RERA.

Now, government of India in its last budget has provided stimuli to the sector helping both the developers and
most importantly the end consumers by providing some credit linked subsidies among others (read

31
 regulations section).

Now, with RERA in place, the unscrupulous players are expected to face the heat and it will put some check on
the supply in otherwise fragmented market.

So, apart from the huge opportunity size, good ethical, organized players are expected to gain market share on
the expense of small unorganized regional players who will not be able to survive after RERA.

Ashiana Housing's sales and profits have grown at a CAGR of 26% and 34% respectively in the last fifteen
years. We expect the company to deliver revenue and profit CAGR of 16% and 24% respectively over FY17-22.
Profit growth will be stronger because we expect margins to improve on the back of operating leverage benefit
it would get once the demand revives.

Thus, given all these factors, we assign a rating 10 based on scalability of business parameter.

8. Market Leadership - Real-estate business by nature is fragmented with many organized and unorganized
players dominating specific regions/areas. It is very rare to find a player with dominance across the country.

Even though the sector is all set for multiyear consolidation (after RERA and other Stimulus), but given the
current scenario i.e. fragmented nature of the sector it is better to look at leadership in the geographies it
operates.

Ashiana is the largest player in Bhiwadi (its biggest market), it is among top two in Jaipur. In fact, just to give
an instance, Ashiana forayed into Jaipur in 2005 and became one of the top two builders by 2011.

Given the quality of the home (at reasonable prices) and timely delivery (in many cases before the scheduled
timing) it has ability to dominate a market once it gets into the root and deliver one or two projects.

In the recent past company has ventured into Lavasa (Pune), Chennai and Kolkata. We believe with all the
qualities of being leader Ashiana is capable of being a market leader in the region it operates.

Further, in case of Senior Living, Ashiana is one of the few players in India to be foraying aggressively in the
segment which has a great market potential in years to come.

So, even though the company has got all the right ingredients to be the market leader but given the
fragmented nature of the industry it operates we assign a rating of 6 on market leadership.

Considering the above analysis, the total ranking assigned to the company is 69 (out of 80). On a weighted basis,
it stands at 8.8. This indicates that fundamentals of the business are robust.

Equitymaster Smart Money ScoreTM

Smart Money Invested 8.0                     15.0% 1.2

Business Quality 9.0                     15.0% 1.4

32
 Competitive Advantage 9.0                     10.0% 0.9

Soul in the Game 9.0                     10.0% 0.9

Capital Allocation 10.0                     10.0% 1.0

Earnings Quality 8.0                     15.0% 1.2

Scalablilty in the Business 10.0                     15.0% 1.5

Market Leadership 6.0                     10.0% 0.6

What are the Risks to be looked out for?

Issues with JV partners: For expanding into newer geographies, Ashiana has been entering into joint
ventures (JVs) with partners. Thus, the challenge is to ensure that the partner with whom it has tied up
is good.

Ashiana did not have a very good experience with this in Pune. The Lavasa project in the region was not
a big success for the company and this was largely because of delays and the problems the JV partner
was facing. However, the good thing is that the Chennai market has been good for Ashiana with a very
good JV partner.

We believe finding a right partner for will be a key challenge for the company.

Longer than Expected revival in the Cyclical Downturn: Real estate is a cyclical business, which
means a sudden change in economic conditions could delay the project schedule and may have an
adverse impact on the company's growth plans.

Infact, since 2014, the real estate sector has been going through a downturn and Ashiana Housing has
been impacted as well. For instance, the situation is quite painful currently in its core market Bhiwadi,
where it is selling houses around 13-14% lower than its usual pricing.

The management also indicated that its Jodhpur and Halol markets are not doing too great either and
the company has no plans of expensing in these geographies for the time being.

Limited visibility beyond near term: As Ashiana Housing typically owns land bank with an execution
time line for the next 5-7 years in mind, once the projects in-hand are executed there is a limited visibility
over the longer term.

If the company is not able to refurbish its land bank at opportune time or there are any delays in land
acquisition for future projects, it may impact the long-term growth prospects of the company.

Having said that, the company has been successful in scouting land for more than two decades. Further,
now in times like this when land prices are on a softer note the company is aggressively scouting for

33
 land parcels.

Labour scarcity: According to the management, there has been a huge shortage of labour at project
sites over the last 2-3 years. Due to success of the government MGNREGA scheme and development of
Eastern India, there has been a big reduction in the migratory labour from states like Bihar, West Bengal
& Odisha. Because of this labour costs have risen and it has also led to cost overruns in several projects.

Updates On ASHIANA HOUSING: Valuations

Add: Alert | Portfolio
We have valued Ashiana Housing Ltd based on
Market Data price to book. We have been very conservative One could
both in the growth assumption and assigning consider
Price On Reco. Date (Rs) 187 (BSE)
of the exit multiple. The company has a very buying the
CMP - BSE / NSE (Rs) 187 / 187 solid track record and industry best financials. stock of
Change Since Reco. 0.1% Ashiana
52-week High/Low (Rs) 250 / 135 We believe it can surprise our conservative Housing Ltd at
assumptions on the positive side, so we have current price
NSE Symbol ASHIANA
conducted a scenario analysis. or lower.
BSE Code 523716

No. Of Shares 102.3 m

Face value
FY17 dividend/share (Rs)
Dividend yield (%)
Stock Classification
What we have essentially done is kept projected book value (FY22) same
10.0
and has given a range of exit multiples that we are comfortable with.
0.3
Doing this we have tried to deduce target price based on different
0.1% combinations of the same.
Small cap

Free Float 39% The below permutations and combinations based on book value and P/B
Market Cap (Rs m) 19,130
multiples gives a fair idea about the potential upside for the stock.
However, in addition to this we have derived a target price on basis of our
Premium Search numbers.

Rs 100 Invested Is Now Worth

View Updated Chart

More On ASHIANA HOUSING

All Recommendation Reports | Latest Update | Latest Stock Quote

Expected Returns (FY22) Under Different Assumptions of P/B Multiples

34
 Exit Multiple CAGR (%)

2.25 9%

2.5 12%

2.75 15%

3 17%

Ashiana Housing Limited is one of the few real-estate companies which boasts of a fully integrated business
model and a strong balance sheet. By adopting a differentiated land acquisition strategy (treating land as a raw
material and not creating a land bank), it has managed to keep business asset light.

The company has always been net cash positive with debt to equity ratio never exceeding 0.5 times. Big players
like Godrej Properties have debt on their balance sheet. In fact, Ashiana scores better than most of the players on
almost all the financial parameters (see 'About the company' section of this report).

Ashiana has a strong and long track record when it comes to quality and timely execution of the projects. It has in
many cases delivered projects well before the promised time lines.

This coupled with facility management has helped Ashiana create a good brand recall which can be seen by
customer referral sales. On an average 65% of the total booking is through customer referrals.

Now, with the advent of the RERA the real-estate sector is set to consolidate. The unethical and unorganised
players are expected to face the maximum heat. In fact, our channel checks suggest that in some markets
unorganised players are currently selling their inventory at cost.

This simply means that the sector may see some check on the supply side and hence narrowing of demand
supply gap (currently the supply has increased the demand in some markets). In addition to supply, Government of
India has introduced flurry of incentives for both low income and middle-income groups to buy houses under
government's 'Housing for all by 2022' initiative.

We believe Ashiana can be one of the major beneficiaries when the sector consolidates in the next 4-5 years.

A Look at the valuations & Return Ratios

Ashiana Housing 2.4 13.3

Godrej Properties 8.7 6.7

Sobha 2.0 8.2

DLF 3.1 10.1

Oberoi Realty 3.2 9.4

Kolte Patil 3.1 15.4

Average 3.8 10.5

Source: Ace Equity, Equitymaster

If we look at the peers, most of the players are trading above Ashiana on the valuations front. However, apart from
Kolte Patil all of them have inferior return ratios compared to Ashiana. The average return ratio among these

35
players is 10.5% and the average P/B is around 3.8 times.

Mind you, these return ratios are for FY17. If we take a longer period say ten years - Ashiana has outperformed
these players. While the average 10 year RoCEs for Kolte Patil stood at 18%, Ashiana did around 30%.

If we look at Ashiana's historical valuations (last five years), the stock has always traded at an average price to
book ratio of 2.8 times and median price to book ratio of 2.5 times.

Now, at the current price of Rs 187, the stock is trading at a trailing price to book ratio of 2.4 times. Even though
the current valuations look slightly expensive, we believe the strong brand and business model along with the
improving demand environment bodes well for the company.

As such, we have arrived at a target price of Rs 328 for the company (from FY22 perspective) by assigning an exit
multiple of 2.75 times. This implies a CAGR of 15% and a point to point upside of 74%.

Please Note - Ashiana is on the verge of entering into a deal with World Bank's arm - International Finance
Corporation (IFC) where it will get Rs 1,500 million. The arrangement would be like a platform where IFC will act like
a contributor of equity for specific projects. For instance, it would help Ashiana buy land for a project in the form of
equity. We have not included this in our estimates. If this gets through (in final stages) the trajectory of the business
would change and our numbers would be even more conservative.

The maximum buy price for the stock is Rs 200.

Even though we have valued the company using Price to book ratio, wealso look at the margin of the safety angle
i.e. we try to see the how much of the total assets of the company makes up for the market capitalisation.

This gives us safety from the downside perspective i.e. in the worst case if the company fails to come out with any
future project (which will not happen), the balance sheet along with the Ashiana Brand provides us margin of
safety.

Even though we have valued the company using Price to book ratio, wealso look at the margin of the safety angle
i.e. we try to see the how much of the total assets of the company makes up for the market capitalisation.

This gives us safety from the downside perspective i.e. in the worst case if the company fails to come out with any
future project (which will not happen), the balance sheet along with the Ashiana Brand provides us margin of
safety.

Margin of Safety Angle

Market Capitalisation 19,000

     

Inventory BV MV (Approx)

Land 2,122.3 3,183

Unsold Flats (Book Value) 2,585 5,364

Others 1,985 1,985

36
 Total Inventory 6,692.3 10,532.45

Cash & Cash Equivalents 2,533.90 2,533.90

Debt 787 787

Total Asset Base 8,439 12,279

% of Market Cap 44% 65%

Brand Value (30% of the Market Cap) 5,700 5,700

To be Market Cap 14,139 17,979

Excess Market Value (with no future Expansion) 4,861 1,021

Source: Company, Equitymaster

As the above table suggests, on a book value basis around 44% of the market capital is captured in the assets and
we assume around 30% of the market cap is due to the brand that Ashiana has created over the years.

In fact, we on a very crude basis look out for the market value of the assets they form around 65% of the total
market capitalization.

(Please note - the Margin of Safety Angle is just to show you the safety angle, we have valued the company on
P/B basis)

According to us, in a scenario of ideal allocation of funds, predominantly mid and small-cap stocks could be
considered to comprise of not more than 30-40% of your total equity portfolio. Further, we believe a single small
cap stock should not form more than 2-3% of the total portfolio. Please note that this allocation will vary from
person to person. For something that works best for you, we recommend you talk to your investment advisor.

Consolidated Financials

Sales 1,427 5,290 3,823 2,235 3,283 4,764 6,451 8,150

Sales growth (%) 29% 271% -28% -42% 47% 45% 35% 26%

Gross Profit 654 1,816 1,338 763 1,084 1,572 2,129 2,689

Gross Profit Margin (%) 46% 34% 35% 34% 33% 33% 33% 33%

Operating Profit 409 1,436 947 629 985 1,429 1,935 2,445

Operating Profit Margin (%) 29% 27% 25% 28% 30% 30% 30% 30%

Net Profit 465 1,058 670 442 736 1,140 1,573 2,001

Net Profit Margin (%) 33% 20% 18% 20% 22% 24% 24% 25%

Balance Sheet

37
 Fixed Assets 677 633 594 661 758 835 891 927

Other Assets 237 220 484 267 267 267 267 267

Inventories 6,243 6,142 6,697 7,348 8,996 10,441 10,604 11,164

Receivables 136 269 239 148 218 316 428 541

Cash and Bank Balances 635 1,009 526 1,915 1,325 1,709 3,262 4,696

Current Assets 10,913 11,146 11,503 10,994 12,837 14,848 17,520 20,476

Total Assets 11,827 11,999 12,581 11,923 13,862 15,951 18,679 21,670

Net Worth 5,228 6,506 7,227 7,642 8,289 9,266 10,556 12,196

Long Term Debt 330 574 781 1,531 1,681 1,181 781 281

Short Term Debt 10 99 6 6 6 6 6 6

Other Non Current Liabilities 202 241 309 309 309 309 309 309

Current Liabilities 6,067 4,678 4,264 2,441 3,583 5,195 7,033 8,884

Total Liabilities 11,827 11,999 12,581 11,923 13,862 15,951 18,679 21,670

Key Financial Ratios

Operational & Financial Ratios

EPS (Rs.) 5 10 7 4 7 11 15 20

Book Value per share (Rs.) 51 64 71 75 81 91 103 119

Dividend Payout Ratio (%) 11% 5% 4% 5% 10% 12% 15% 15%

Margin ratios (%)

EBITDA Margins 29% 27% 25% 28% 30% 30% 30% 30%

EBIT Margins 38% 28% 27% 30% 33% 32% 33% 33%

PBT Margins 34% 27% 24% 26% 30% 32% 33% 33%

PAT Margins (adj) 33% 20% 18% 20% 22% 24% 24% 25%

Performance Ratios (%)

ROE 9% 16% 9% 6% 9% 12% 15% 16%

ROCE 10% 21% 13% 7% 11% 15% 19% 22%

ROIC 20% 31% 16% 8% 11% 17% 26% 34%

Turnover Ratios Days

Debtors 52 18 18 30 30 29 27 24

Inventory 1,584 443 671 1,335 1,080 806 616 500

Creditors 86 18 19 34 33 32 30 27

Cash Conversion Cycle (days) 1,550 442 670 1,331 1,077 803 613 497

Fixed Assets turnover (x) 2 8 6 4 5 6 7 9

Financial Stability Ratios (x)

Debt-equity 0.06 0.10 0.11 0.20 0.20 0.13 0.07 0.02

38
 Current ratio 1 2 2 4 3 3 2 2

Growth Ratios

Net Sales growth (%) 29% 271% -28% -42% 47% 45% 35% 26%

PAT growth (%) 103% 127% -37% -34% 66% 55% 38% 27%

Valuation Ratios

Price to earnings (x) 41 18 28 43 26 17 12 10

Price to book value (x) 3.6 2.9 2.6 2.5 2.3 2.1 1.8 1.6

Price to sales (x) 13.4 3.6 5.0 8.5 5.8 4.0 3.0 2.3

Performance Review
This is as per the closing prices for the stocks as on 25th January 2018.

The stock of SP Apparels is trading below the price at which we had originally recommended the stock. Our
maximum Buy price for the stock is Rs 460. Thus, we maintain BUY view on the stock of SP Apparels.

Our view on the stock of TCPL Packaging Ltd remains a HOLD considering the steep run-up in its prices post our
recommendation. Please note the maximum Buy price for the company is Rs 600.

The stock of Ador Fontech Ltd has also gained since our recommendation. The maximum Buy price for the
company is Rs 100. Given that the current price is above the maximum Buy price, our view on the stock of Ador
Fontech remains HOLD.

Mayur Uniquoters has also gained considerably since we recommended the stock. The maximum Buy price for
this stock is Rs 400. Since the current price is above our maximum Buy price, our view on the stock of Mayur
Uniquoters remains a HOLD.

TVS Srichakra Ltd has also gained quite a bit since we recommended the stock. The maximum Buy price for this
stock is Rs 3,250. Thus, our view on the stock of TVS Srichakra Ltd remains a HOLD.

Honda Siel Power Products Ltd has moved upwards since we recommended the stock, but has corrected a bit in
the last month. The maximum Buy price for this stock is Rs 1,400. Since the current price now is below our
maximum Buy price, we change our view on the stock of Honda Siel Power Products Ltd from HOLD to BUY.

Jagran Prakashan Ltd has gained since we recommended the stock last month, but the current price is still below
our maximum Buy Price of Rs 185. Hence, we maintain our BUY view in the stock of Jagran Prakashan Ltd.

The performance review of our open positions table is mentioned below:

Summary of Open Positions for Smart Money Secrets as on 25th January 2018

39
 SP Apparels Ltd 3-Jun-17 Buy 424 766 378 -11% Buy 103%

TCPL Packaging 23-Jun-17 Buy 515 1,100 705 37% Hold 56%
Ltd

Ador Fontech Ltd 27-Jul-17 Buy 95 169 121 27% Hold 40%

Mayur Uniquoters 21-Aug-17 Buy 345 673 522 51% Hold 29%
Ltd

TVS Srichakra Ltd 25-Sep-17 Buy 3,127 4,934 3,508 12% Hold 41%

Honda Siel Power 26-Oct-17 Buy 1,314 2,387 1,392 6% Buy 71%
Products Ltd

Jagran Prakashan 22-Dec-17 Buy 171 312 175 2% Buy 78%

Ltd

Ashiana Housing 27-Jan-18 Buy 187 328 187 0% Buy 75%

Ltd

The Top Stocks To Consider Buying Now

As you are aware, the list of top stocks allows subscribers to choose a handful of Best buys from amongst our buy
recommendations. The 'must have' criteria for stocks to be eligible in the list of best buys are a high rating on the
Smart Money Score. The additional level of filter will be their return potential over a period of three to five years.
But as you understand, the list will not be static but will evolve over time.

Of the nine stocks we have recommended under Smart Money Secrets so far, six have run up since we had
recommended them, while a couple of them are still attractive. Thus, the list for this month comprises Honda Siel
Power Products Ltd and Ashiana Housing Ltd. The potential upside allows subscribers to buy these stocks even at
current prices.

Please do pay attention to our latest views on the stocks mentioned in this list every month.

According to us, in a scenario of ideal allocation of funds, predominantly mid and small-cap stocks could be
considered to comprise of not more than 30-40% of your total equity portfolio. Further, we believe a single small
cap stock should not form more than 2-3% of the total portfolio. Please note that this allocation will vary from
person to person. For something that works best for you, we recommend you talk to your investment advisor.

Here is our list of Top Stocks To Consider Buying

>> Honda Siel Power Products Ltd.

>> Ashiana Housing Ltd.

Kunal Thanvi (Research Analyst), Managing Editor,Smart Money Secrets, a member

of the Institute of Chartered Accountants and the Companies Secretaries of India. He
started his career with a PMS as a buy-side analyst. He is a balance sheet driven
analyst who loves niche businesses with competitive advantages.

He practices value investing based on Ben Graham's principles of 'Margin of Safety'

and 'Mr Market'. He is an avid reader who believes it's better to learn vicariously than
the hard way.

Where Smart Money Secrets Fits In...

Our team will focus primarily in the mid and small cap domain. Having said that, we will remain market-cap agnostic towards
mispriced opportunities that the markets may present to us.

40
Market participants must note that stock markets tend to be very volatile. Mid and Small cap stocks are inherently riskier
compared to large blue-chip stocks. On the brighter side, they present a huge growth potential. It is not unusual for a good small
and mid-cap stock to turn a multibagger in a short period of time. But on the flipside, there is a considerable risk attached. And
putting too much money in a single stock or sector can be very risky.

According to us, in a scenario of ideal allocation of funds, predominantly mid and small-cap stocks could be considered to
comprise of not more than 30-40% of your total equity portfolio. Further, we believe a single small cap stock should not form more
than 2-3% of the total portfolio. Please note that this allocation will vary from person to person. For something that works best for
you, we recommend you talk to your investment advisor.

Frequently Asked Questions

These are some of the Most Frequently Asked Questions on Smart Money Secrets. Please view the others here.

If the stock price runs up post the recommendation and trades at levels higher than the
buy price, should one still buy the stock?
Please note that small and midcap stocks, in general, have low market capitalisation and liquidity. There is always
the possibility that these stocks may shoot up in price in no time, even at the time of our recommendation.

Therefore, we would like to recommend to our subscribers not to chase prices and not to consider buying a stock
once it goes beyond our recommended maximum buy price. There will be enough recommendations in a year so
that the pain of missing out on a few recommendations is eased considerably.

Do note that we give maximum buy price range for every stock we recommend in Smart Money Secrets.

Can there be an overlap or contrary views on the stocks recommended under this service
and that of the other Equitymaster services?
We believe that earning good returns from stocks is all about following a well-defined process.

In line with this, each of our product teams, be it the Smart Money Secrets team or Hidden Treasure or The India
Letter, has its own unique screen and checklist for selecting and recommending stocks. In rare cases, where there
is a compelling proposition to recommend a stock in more than one service simultaneously, could there be an
overlap in stocks.

For example, the Smart Money team has unique smart money screener for any stock to pass i.e. 1) Greater than 1%
shareholding of Super Investors; 2) Bulk & Block Deals; and 3) Increasing Promoter Shareholding. On the other
hand, same stock could be recommended under another service irrespective of the smart money screener. In fact,
any service may have recommend a stock and now smart money has entered the stock, it becomes a candidate
for Smart Money Team.

Thus, there could be recommendations that overlap with those in our other services. This aspect also leaves the
stage open for sometimes contradictory recommendations.

What does 'Closed Position' mean?

StockSelect recommendations are meant to meet the target prices within a time frame of three years. So when the
stock meets target price or completes the time frame we 'close the recommendation'. However, since we keep
reviewing our assumptions and estimates for the stock even in the interim, the view or target price on the stock
may warrant a change. This could be a revision upwards or downwards. In such cases, if the previous
recommendation on the stock is no longer valid we close that recommendation. So we essentially close

41
recommendations either by giving a Sell view or putting out a changed view.

How to read the returns calculations?

For positions that are not closed returns are calculated from date of recommendation till date.

For closed positions, there can be two types of calculations.

Assuming we initially gave a Buy on a stock with no subsequent recommendations on the same stock.
In that case the calculation is fairly simple. The returns shown in this case is simply the change in stock
price from the date of recommendation till the date on which the position was closed.

Now let us take a case where we initiated with a Buy (1st position) and subsequently came with another
recommendation (2nd position) on the same stock. Let us assume that the subsequent
recommendation was also a buy. In such cases, the return calculation depends on whether the 1st
position is closed or not. If the first position is closed before we reiterate buy then the return on the first
position will be calculated as shown previously. However, if 1st position was not closed before we
reiterated buy, then the return calculation is from the earlier buy recommendation till the date on which
the position was closed. Basically where we have reiterated view on a stock we try to show cumulative
returns. The same logic applies with Hold recommendations as well.

Now let us look at Sell recommendations. There can be two situations here.

If there is no recommendation subsequent to the Sell recommendation we show maximum drop in stock
price from date of sell recommendation till date.

If the Sell recommendation is followed up by another recommendation, we show maximum drop in stock
price between the two recommendation dates.

Basically we have tried to cover all hypothetical instances in this note that may help you better understand the
return calculations and closed positions of our recommendations. If you have any query pertaining to it please do
write in to us for further clarifications.

Definitions of Terms Used

Buy recommendation: This means that the subscribers could consider buying the concerned stock at
current market price keeping in mind the tenure and objective of the recommendation service.

Hold recommendation: This means that the subscribers could consider holding on to the shares of the
company until further update and not buy more of the stock at current market price.

Buy at lower price: This means that the subscribers should wait for some correction in the market price
so that the stock can be bought at more attractive valuations keeping in mind the tenure and the
objective of the service.

Sell recommendation: This means that the subscribers could consider selling the stock at current
market price keeping in mind the objective of the recommendation service.

To enhance your experience of using Smart Money Secrets and to ensure that this journey is smooth for you we have compiled a list

42
of Frequently Asked Questions.

DISCLOSURES UNDER SEBI (RESEARCH ANALYSTS) REGULATIONS, 2014

INTRODUCTION:
Equitymaster Agora Research Private Limited (hereinafter referred to as "Equitymaster"/"Company") was incorporated on October 25, 2007. Equitymaster is a joint
venture between Quantum Information Services Private Limited (QIS) and Agora group. Equitymaster is a SEBI registered Research Analyst under the SEBI (Research
Analysts) Regulations, 2014 with registration number INH000000537.

BUSINESS ACTIVITY:
An independent research initiative, Equitymaster is committed to providing honest and unbiased views, opinions and recommendations on various investment
opportunities across asset classes.

DISCIPLINARY HISTORY:
There are no outstanding litigations against the Company, it subsidiaries and its Directors.

GENERAL TERMS AND CONDITIONS FOR RESEARCH REPORT:

For the terms and conditions for research reports click here.

DETAILS OF ASSOCIATES:
Details of Associates are available here.

DISCLOSURE WITH REGARDS TO OWNERSHIP AND MATERIAL CONFLICTS OF INTEREST:

a. 'subject company' is a company on which a buy/sell/hold view or target price is given/changed in this Research Report.
b. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any financial interest in the subject company.
c. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one percent or more securities of the subject
company at the end of the month immediately preceding the date of publication of the research report.
d. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any other material conflict of interest at the time of publication of the research
report.

DISCLOSURE WITH REGARDS TO RECEIPT OF COMPENSATION:

a. Neither Equitymaster nor it's Associates have received any compensation from the subject company in the past twelve months.
b. Neither Equitymaster nor it's Associates have managed or co-managed public offering of securities for the subject company in the past twelve months.
c. Neither Equitymaster nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject
company in the past twelve months.
d. Neither Equitymaster nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or
brokerage services from the subject company in the past twelve months.
e. Neither Equitymaster nor it's Associates have received any compensation or other benefits from the subject company or third party in connection with the
research report.

GENERAL DISCLOSURES:

a. The Research Analyst has not served as an officer, director or employee of the subject company.
b. Equitymaster or the Research Analyst has not been engaged in market making activity for the subject company.

Definitions of Terms Used:

a. Buy recommendation: This means that the subscriber could consider buying the concerned stock at current market price keeping in mind the tenure and objective
of the recommendation service.
b. Hold recommendation: This means that the subscriber could consider holding on to the shares of the company until further update and not buy more of the stock
at current market price.
c. Buy at lower price: This means that the subscriber should wait for some correction in the market price so that the stock can be bought at more attractive
valuations keeping in mind the tenure and the objective of the service.
d. Sell recommendation: This means that the subscriber could consider selling the stock at current market price keeping in mind the objective of the
recommendation service.

Feedback:

If you have any feedback or query or wish to report a matter, please do not hesitate to write to us.

MORE ON ASHIANA HOUSING MORE SMART MONEY SECRETS

Sorry! There are no related views on news for this Jagran Prakashan Limited
(Smart Money Secrets)
company
Dec 22, 2017

43
 Smart Money Secrets recommendation report for
the month of December 2017.

Honda Siel Power Products: Still Awaiting a

Rural Recovery
(Quarterly Results Update - Detailed)
Dec 11, 2017

Good monsoons and a strong product portfolio are

expected to improve Honda Siel's growth prospects
in the coming quarters.

TVS Srichakra: Rise in Depreciation Hits Profit

Growth
(Quarterly Results Update - Detailed)
Dec 8, 2017

TVS Srichakra is gearing up to cater to the

replacement demand in the export markets in the
coming months.

AIA Engineering Limited

(Smart Money Secrets)
Nov 27, 2017

Smart Money Secrets recommendation report for

the month of November 2017.

Mayur Uniquoters: Auto Industry Drives Sales

(Quarterly Results Update - Detailed)
Nov 21, 2017

There are significant growth drivers for Mayur

Uniquoters in the coming months.

More Views on News     Recommended Reading

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Vivek Kaul's Diary Phase One Alert
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