Management Discussion and Analysis
INDUSTRY STRUCTURE, DEVELOPMENTS & OUTLOOK
"India lives in villages" an oft-repeated adage is losing relevance thesedays under the urbanizing India. Since 1931, the portion of India living in cities hasgrown gradually along with the rising GDP of the country. Currently 340 million peoplelive in cities amounting to 30% of the Indian population, and this will rise to 590million people by 2030 as per a study by McKinsey. The impact of this can be gauged fromthe vision of urban development included in the Eleventh Five Year plan by Government;"Indian cities will be the locus and engine of economic growth over the next twodecades, and the realization of an ambitious goal of 9% -10% growth in GDP dependfundamentally on making Indian cities much more livable, inclusive, bankable, andcompetitive." This is significant in explicitly recognising the role of cities inachieving rapid economic growth.
On a macro level, the underlying theme of the Government has been recovery of theeconomy from the unprecedented crisis of 2007-09 in the recent years. World GDP, which haddeclined by 0.6 percent in 2009, grew at 5 percent in 2010 and is expected to stabilize atabout 4.4 percent in 2011. The Indian Economy bounced back well and is estimated to growat 8.5 percent in 2010-11 as compared to 8 percent in 2009-10. But at the same timeinflation also reached its peak, leading the RBI to raise interest rates sharply lastyear. This surely had some affect otherwise but rising sales throughout reflected thecustomers confidence and the buoyant demand in the segment.
Going back on the demand, from 340 million people to 590 million in 2030, this meansaddition of 250 million people in cities in next 20 years. This will mean more jobs,better infrastructure, services and housing. Apart from the existing housing needs, these250 million people (lets say an average family size of 5) will require 50 millionhomes in next 20 years. Currently there are 42 cities in total and in the next twodecades, there will be 68 cities. These new cities will emerge out of villages or will beoffshoots of large metropolitans. This phase of transition brings in itself immenseopportunities of development and growth.
Bhiwadi for example, which was unknown two decades back, today homes umpteen top notchglobal industries. It is part of the 2021 National Capital Region Plan. Bhiwadi has gotplants of major multinational companies that one can think of. These companies haveacquired huge acres of land in Bhiwadi, made crores of investment and employed thousandsof people. Saint Gobain, for example, created 2500 jobs, Honda car employs 5000 people,Orient craft has created 14000 jobs & Jaguar 1000 jobs, SRF Ltd, already employ400-500 people in the city, Nahar Group has 2000 employees and the list continues.
Ashiana ventured into Bhiwadi in 1992. Started the first project - Ashiana Greens with130 units and 5 shops. Ashiana at that time was the first organized developer in Bhiwadi.After that, we came with several projects like Ashiana Bageecha, Ashiana Gulmohar, AshianaGardens, and Ashiana Rangoli over the years. Immense industrial growth all the way has notonly projected Bhiwadi into being the third largest industrial hub in the country but alsohas created a huge demand for housing and other infrastructure facilities. Till now, wehave delivered approximately 2,750 happy homes in Bhiwadi. Today Bhiwadi is witnessingever rising residential and commercial developments. And Ashiana with currently 600 homesin pipeline in Ashiana Aangan and a couple of more projects under pre-launch stage is allset to grow along with the growing Bhiwadi.
Another example could be Gujarat. If we just look at the investment figures, in thepast decade, Rs 99,805 crores have been invested in infrastructure of Gujarat, and theinvestment planned for next decade is Rs 11,80,912 crores. The remarkable industrial andeconomic growth will naturally call for enhanced infrastructure. If this happens we willsee demand for housing outstripping supply. The demand for housing, for example inAhmedabad alone had rose to about 1.35 lakh units annually whereas the supply is less than40,000 units. The growth of the industry in Gujarat is apparent from the difference instamp duty and registration revenue, which went up from 19 percent to 34 percent of thetotal state revenue in the last financial year. There is a huge scope for real estatedevelopment, which makes the place a lucrative market for builders.
The idea is that when new cities emerge, they bring with them the developmentopportunities for the people. Growth in employment, infrastructure and services all inturn contribute to higher incomes and increasing purchasing power of its inhabitants.
Ashiana wants to tap this opportunity and is on lookout for such growing cities. Thecurrent goal is to add three new cities in the next three years to grow along with thegrowing economy.
Again if we look deeper into these cities, there are changing social and culturaltrends within them. One being the emergence of nuclear families and decrease in averagesize of families over the last two decades. The socio-economical changes in the societyare compelling young people to move out from their homes to pick up jobs for maintainingbetter living standards. Growth in the number of nuclear families is leading to anincrease in the number of households, especially middle-class households. India isexpected to be home to 91 million middle-class households by 2030.
The major target segment of Ashiana (Middle Income Group Housing) will surely benefitfrom these advances in the coming future.
Other interesting trend which can be observed is the growing elderly population in thecities. The elderly population in India is the second largest in the world, next only toChina. This population, which was 77 million according to the 2001 census (7.5% of thetotal population), is projected to increase to 137 million by 2021. Population projectionsshow that by 2050, the elderly population in India will surpass the population of childrenbelow 14 years.
Also there are other socio-economic factors changing along with the demographicpatterns. Improved economical conditions, better medical facilities forcing longevitygraph going upwards, desire to lead independent and active life by seniors, all this hasled to a gradual increase in demand for active senior living.
Ashiana came with Utsav Bhiwadi in 2007. It is a lifestyle product for seniors,residential communities serving the three major needs of senior citizens: basic medicalfacilities, security and companionship. As there are people of similar age (55 years andabove), it helps them bonding and sharing better. It encourages people with ampleopportunities to socialize by providing meals in a central dining area scheduled socialprograms and organizing them in cultural and hobby groups.
Ashiana has created quality senior living projects in Bhiwadi, Jaipur and Lavasa (underconstruction). Equipped with valuable experience in the field of Active Senior Living, thecompany will continue to lead in this spectrum in the real estate market.
Ashiana is well poised to cater the changing socio-economic trends with its targetproducts: Group Housing and Active Senior Living in mid-income segment. At the same time,challenges which occur while focusing on the Middle Income Housing is to provide betterquality homes at affordable prices.
Actual users generally take a long time in decision making and site visits play animportant role in their decision making process. Conversion ratio* for the year increasedby 18% from that of the last year (It is the percentage of site visits that have resultedinto actual bookings.) Good conversions indicate two things (a) Improved experience of theclients with our products and (b) Increased confidence and job security that has helpedpeople make quicker decisions despite the rising interest rates.
Area booked increased at the rate of 91% to 13.50 lakhs sq. ft. from 7.07 lakhs sq. ft.last year. A large portion of it came from projects in partnerships like Rangoli Gardens(3.09 lsf), Ashiana Greenwood (1.41 lsf) and Ashiana Amarbagh (1.07 lsf). This alsoresulted in comparatively larger increase in Share in profit of partnershipfirms.
Other factors which contributed into better bookings were buoyant markets, launching ofnew phases in projects, right design and right pricing of the products keeping in mindcomfort & affordability of home buyers. The dedicated and stable Sales team (thecredit of which can be given to the deliberate HR Policies adopted over the year with afocus on minimizing the attrition & employee growth as detailed later in MDA) is alsoone of the key factors in pushing the sales figures.
We also reached the level of 10.74 lakhs sq. ft. in Equivalent Area Constructed for thefirst time in 2010-11. The increase was minimal because of couple of reasons. First beingthe stoppage of work at Lavasa for four months (Dec10-Mar11), due to a stay order byMinistry of Environment & Forests (MoEF). Stoppage costed us approx Rs 60 lakhs in thefiscal year. It has delayed the construction process and delivery deadlines for theproject. The other issue which the entire sector faced was the shortage of labour.Scarcity of skilled labour is rampant and affecting both the margins and speed inconstruction. At our end, Ashiana has started focusing on increasing labour efficiency asone of the key thrust areas. Also, the skill training happening at the project sites(detailed in CSR section) is helping us in meeting the scarcity of skilled manpower.
Better bookings and construction also resulted in reduction of developable and saleableinventory. Land Multiple** at the end of the year was 5.93 ensuring that we havesufficient land bank for well execution of our growth targets without facing shortage ofland at any given point of time in near future.
On other developments during the year, we also added four new subsidiaries in ourportfolio primarily for acquiring land, namely,
*Conversion Ratio is basically the percentage of site visits that have resulted intoactual bookings.
**Land Multiple is a measure which we track internally to predict and maintain thesufficient land inventory to achieve the targeted growth in sales and construction overthe years. As a strategy, company focuses on maintaining a land inventory of 5-7 timesexecution capabilities. Land multiple for any given period can be calculated as:
1. Topwell Projects Consultants Ltd.
2. Latest Developers Advisory Ltd.
3. MG Homecraft LLP
4. Neemrana Builders LLP
Keeping in view the requirements for better infrastructure and space, Bhiwadi officeshifted from Ashiana Bageecha complex to Village Centre. Also, another office was acquiredin New Delhi in the same building.
Village Centre, the commercial complex with shops for retail, office space and hotelrooms at Bhiwadi, Rajasthan also became fully operational in the year (total Built Up Areaof 1lakh sq. ft.).
Better sales and collections definitely reflect in financial statements. For the yearending March 11, Consolidated Sales and Other Income rose by 27 % to Rs 15,412 lakhs, asagainst Rs 12,103 lakhs during the previous year. Consolidated Sales and Other Income hasgrown at a CAGR of 23% in the last five years. Further, the consolidated Profit after Taxincreased by 19% to Rs 4,386 lakhs as compared to Rs 3,677 lakhs in the previous yearended 31st March, 2011.
There were increasing pressures on input costs which kept the margins lower than therise in revenues. Commodity prices are usually cyclical in nature and get adjusted in thelong run in line with inflation. But Labour costs generally get sticky upwards and affectthe margins. One of the key thrust areas for the coming years is to increase labourproductivity and efficiency in order to counter the rising cost of labour.
Keeping optimum land inventory, as discussed in the last section has also benefitted usin the way that lesser the capital is blocked which gives higher returns on the net worthof the company. We would also look to reduce the operational cycle in order to churn thecapital faster, quicker returns and more opportunities to venture into newer projects.
Capital worth Rs 15.86 Crores was released during the year from Capital Work inProgress and added to Fixed Assets as the Village Centre (Extension of existing Treehousehotel, a shopping complex and an office space) in Bhiwadi was completed in the year. Hoteland shopping complex are operational now and have started generating cash flows.
Last year was also very good in terms of cash reserves, a lot of inventory gotunlocked. Total cash and cash equivalents at the end of the year amounted to Rs 48.56Crores. We plan to deploy this reserve in newer projects going forward.
In the year, ICRA assigned LBBB (pronounced as L triple B) rating to Rs 50.00 croresproposed term loan of Ashiana Housing Limited (AHL). We are currently a net debt freecompany. Even if we take a loan of lets say, Rs 50 Crores, the Debt-Equity ratio will riseup to 0.3:1 only (taking into account the current Equity of 174.94 Crores as on 31st Mar2011). The sound balance sheet will allow us to charter the expansion plan by leveragingthe equity in safe limits.
On an equity base of Rs 18.61 crores, the Earning per share (EPS) of the company as on31st March, 2011 was Rs 23.57 per share as against Rs 20.33 per share on 31st March, 2010.Also, the board of directors of the company has proposed a dividend of Rs 1.75 per shareon the face value of Rs 10 per share for the year.
Ashiana Aangan: Ashiana Aangan, the 20.62 lakhs sq. ft. project in Bhiwadi is runningat a faster pace then expected. The first three phases were constructed and handed overcomprising of 12.7 lakhs sq. ft. area. Aangan clubhouse is also operational now and offersa variety of options: swimming pool, pool room, gymnasium, library, badminton court, TTroom etc. During the year, phase IV and V have been launched for bookings, along with aEWS-LIG segment (96 units) and Aangan Plaza (neighbourhood shopping). Of the 41 shops inAangan Plaza, 16 are already booked.
Rangoli Gardens: Rangoli Gardens launched this year in Jaipur is our largest projecttill date. It is spread over 26 acres with 8.8 acres of parks within the complex. Thetotal saleable area of the project is 25 lakhs sq. ft. Since launch, Rangoli Gardens hasreceived enormous response and 3.50 lakhs sq. ft. has already been booked. Theconstruction is in full swing and we expect to deliver the first phase ahead of schedule.
Active Senior Living
Utsav Lavasa: The year 2009-10 was quite hard on Lavasa Project. The construction wasstalled and bookings affected because of MOEF (Ministry of Environment & Forests) stayorder. Till date it has costed us around 60 lakhs and is costing us about 20 lakhs amonth. But Lavasa consists of even less than 10% of the developable space that Ashiana iscurrently holding. So there wont be any major effect on its operations.
|Project ||Type ||Saleable Area ||Area Launched ||Area Booked ||Expected Completion Time |
| || || || |
|Name & Location || || |
In lakhs sq. ft.
|Ashiana Aangan ||Group Housing ||20.62 ||20.52 ||14.41 ||First three phases handed over , Phase IV and V in CY 2012. |
|BHIWADI || || || || || |
|Utsav ||Active Senior Living ||3.88 ||2.98 ||1.45 ||Phase I handed over, Phase II in May 2011, Other Phases in 2012. |
|JAIPUR || || || || || |
|Ashiana Greenwood ||Group Housing ||3.62 ||3.62 ||3.24 ||Phase I handed over, started handing over Phase II. |
|JAIPUR || || || || || |
|Ashiana Brahmananda ||Group Housing ||4.79 ||3.55 ||2.32 ||Phase I in CY 2011 and Other Phases in CY 2012. |
|JAMSHEDPUR || || || || || |
|Ashiana Amarbagh ||Group Housing ||5.33 ||3.49 ||3.04 ||Started handing over Phase I, IA and II, Phase III to be delivered in CY 2011, and Other |
|JODHPUR || || || || || |
|Utsav Lavasa ||Active Senior Living ||6.87 ||3.91 ||2.02 ||Phases in CY 2012. Phase I in CY 2012 and Other Phases between CY 2012 and CY 2013. |
|LAVASA || || || || || |
|Rangoli Gardens ||Group Housing ||25.00 ||7.84 ||3.50 ||Phase I in CY 2012 & Other Phases between CY |
|JAIPUR || || || || ||2012 and CY 2016. |
|TOTAL || ||70.11 ||45.91 ||29.98 || |
It was a temporary setback, but we have achieved our overall targets for the year andhave set aggressive goals for the next year.
We are hopeful of a satisfactory solution to the Lavasa project sometime later thisyear with the clearance of MoEF and hope to kickstart our development activitiesimmediately after that.
Utsav - Active Senior Living
Utsav - as the name suggests is a place to celebrate - to celebrate the life, torejuvenate and to live happily, safely and secured. It is a lifestyle product for seniors,residential communities serving the three major needs of senior citizens: basic medicalfacilities, security, and companionship.
Till now, we have been using Utsav - Retirement Resorts as the caption forthis. But as a part of branding initiative, the caption is now changed to Utsav -Active Senior Living. The decision was undertaken as Active Senior Living more aptlydescribes the lifestyle enjoyed by the elderly at Utsav Homes. Utsav offer seniors anindependent lifestyle, a healthier and longer life with prompt access to medical andemergency care. It not only provides a place to stay but also affords seniors a life ofdignity where they live life on their own terms
Ashiana has created quality senior living projects in Bhiwadi, Jaipur and Lavasa (underconstruction). Equipped with valuable experience in the field of Active Senior Living, thecompany will continue to lead in this spectrum of the real estate market.
Vatika Marketing Limited is the wholly own subsidiary of Ashiana which looks afterFacility Management. It has now been branded as VML.
VML does more than maintaining the buildings with respect to electrical and civilworks, or the water supply, security, cleanliness, gardens etc. by organizing sporting andrecreational events for residents and encouraging RWA to be active. VML fulfils animportant social role. It also provides resale and rental services for its residents whichin turn helps Ashiana keep a tab on the current capital values and occupancies in itsprojects.
Over the last year, there have been focused improvements in the support functions suchas HR, IT and procurement. Efforts have been laid down in order to move to process basedcompetencies from product based competencies. Advanced software systems have beeninstalled such as Customer Relationship Management and Material Management software.
Many steps were taken over the year on communication and information flow both internaland external. A structured one-day knowledge sharing platform where the senior and middlemanagement meets and discusses the achievements over the past month and threats andopportunities going forward. As the business is growing at a fast pace, Ashiana isequipping the middle managers to carry the large management load of the business.
A one page strategic plan to specify the long term vision of the company, setting thelong term goals, deciding on the strategy and key thrust areas, short term focus onnumbers and last but most important, aligning the people to the core values and the corepurpose of Ashiana.
The circulation of our corporate newsletter "Apna Ashiana" reached to 19,000families. Its purpose is to focus on regular communication with stakeholders through ApnaAshiana by giving updates on what is happening inside the organisation, new bulletin ondifferent projects and other useful information on recent trends. We also launchedASHIANA CARE which targets to address the queries, complaints and requests ofcustomers. If any customer posts his grievance on email@example.com, hegets a reply within 48 hours with either the solution or the deadlines for the solution.We also came out with a 24*7 helpdesk which provides the facility of live chat for basicqueries on the Ashianas website.
The most important asset any organization can have is its Human Resource capital. Toensure that Ashiana has the right kind of people at the right time and that their goalsare aligned with the companys. Last year, the following initiatives were taken toimprove upon Human Resource policies: n The average hours of training per employee haveincreased from 1.5 hours in 2009-10 to 8.1 in 2010-11.
30% of people hired over the year were from referrals. It has increased thequality and retention of our manpower substantially.
Induction and Orientation: A seven day formal induction program was launched in2010-11 to smoothen the initial orientation and settling period for every employee thatjoins in.
Proper communication with mentors and the HR team in the pre-joining period helps newjoiners to understand the company culture and policies even before they actually steps inthe organization.
Corporate Social Responsibility
Ashiana Housing Limited has been working towards the Corporate Social Responsibilityfor the past many years. Regular efforts in the field of Skill Training, Tree Plantationand Education etc. have been taken up by Ashiana. The company is running an In-house SkillTraining Centre for unskilled manpower and kids school for labourers children.
In year 2010-11, Ashiana provided Skill Training to 127 people in order to createemployability for backward and unprivileged class. 919 trees were planted in the year andRain Water Harvesting concept was installed in all the projects. Ashiana Phoolwariattracted near to close to 95% of the labourers children throughout the year. Inconjunction with the government policy, solar heating systems have been incorporated intoilets of all current and future residential complexes in order to save electricity. FreeMedical Campaigns were carried out throughout the year. Social events were also organizedthrough Ashianas employees and residents to bring in human aspect in everyonesdaily life. Like in Joy of Giving Week, contributions were made through gunnybags (comprising clothes, daily necessities & utensils) for the under privileged.
Risks And Concerns
The challenges ahead will be to cater the hardening interest (mortgage) rates,inflationary prices and the expanding labour costs.
Inflation has been high in this country for the last two years. This has been due tocertain special factors. Supply-side constraints, particularly on the agricultural side,were responsible for pushing inflation in 2009-10. In 2010-11, it was not food grain, butthe rise in the prices of vegetables, fruits and other commodities, which pushed theprices. RBI reacted accordingly and increases interest rates sharply in last six months ofthe fiscal. But since we sell our homes to middle-income people who are looking to buy ahouse so that they can stay there, a house is a necessity for them. So, a 50-basis-pointrise in interest rates will not stop them from taking a loan to buy an apartment. Hence,interest rates will have a much lesser impact on the demand for loans than other factorslike unstable employment and very high property value. The cost of a house as a multipleof the annual income of a borrower is currently estimated at 4.8 times. In other words, ittakes about 4.8 years income to buy a house. As long as that ratio stays in therange of 4.2-5.5, the demand for housing will be there.
Other concerning factor as discussed earlier as well is the rising cost of labour. TheMinimum Wages Act also raised the wage rate for skilled and unskilled manpowerthis year. These costs put pressure on margins if they rise higher than the inflationrate. Also, scarcity of skilled manpower leads to higher costs. We have been focusing onincreasing labour productivity and training manpower for skilled jobs to counter the issueas discussed in the previous sections.
The regulatory environment for the sector remains uncertain. The provision for indirecttaxes (service tax and VAT in certain states) on the sector is still unclear. These taxescan and will be passed on to the customer, however multiplicity of taxes in the sectorincluding stamp duty, external development charges, internal development charges, labourcess and now service tax and VAT create cascading effects which hurt affordability. Thecurrent regulations and tax structure of the real estate sector needs to be simplified toincrease efficiencies of the sector.
In the long run, with Indian economy growing and urbanizing at a substantial rate,demand for homes will be tremendous. With Ashianas focus on cities with populationbetween one to five million, there is an emerging market to benefit from.
We are looking to aggressively launch new projects and new phases of existing projectsto capitalise on the opportunity that lies ahead. In the short term inflationary andinterest rate pressures might affect the margins and demand. However with economyrecovering better than expected, rising GDP, increased job security and confidence amongthe people at large, demand looks buoyant. The current situation also presents anopportunity to acquire land at better terms and enter new markets.
We firmly believe that the fundamentals of the Indian economy are strong and highgrowth levels can be sustained for a longer period of time. The changing demographic mixand the increasing income levels will continue to drive the demand for real estate acrossall segments in which the Company operates - Middle Income Housing & Active SeniorLiving. We made big strides with all time high bookings of over 13.5 lakhs sq. ft. duringthe year. With the revamped marketing & sales efforts, the Company expects this trendto continue during 2011-12 and aims to book an area of 16 lakhs sq. ft. & construct anequivalent area of 14 lakhs sq. ft.