The two stocks, Financial Technologies and MCX, had another free-fall today. It was tempting to analyze them. The two primary questions were:
- How impactful can be the damage of NSEL for Financial Tech?
- Why is MCX falling?
Finding answer to both of the above was almost impossible. Sometime in the future the things might look obvious in the hindsight, but for now, they remain unanswered. From the various discussions, it was pretty clear that it was not the case of "unjustified pessimism."
The events are best covered by CapitalMind and Prof. Bakshi.
There was a conference call of Ashiana Housing later during the day. Brief inputs told that this is a real estate company which is clean. At current levels, most real-estate companies look deeply under-valued, but hardly any of them want to share the wealth with their shareholders. It is clearly reflected by other real-estate companies' profit margins which are around 15%. Ashiana is among the few which have the margins of over 26% and which also provide proper pricing details on their website.
I began with 2013 numbers as the revenues have dropped by almost half. The 2013 annual report answered: "the year 2013 was low as expected. The reason being the change in accounting policy from POC (percentage of completion) to the contract completion method." This is a conservative accounting policy and seems to have hit the company even more as most of their earlier projects have just completed, and the new ones have just begun. The company recommends to use ECA (equivalent constructed area) and cash from operations as better comparative indicators.
The company does seem to have a very good brand benefit. They don't sell through brokers (instead incentivizes the buyer if he comes through referral), restrict reselling upto 60% payment (approx 1.5 years) and treat land as raw-material (and not build up land banks). These can provide a very long term benefit to a company.
Valuation wise, the company has a market capitalization of 360 Crores. There is a cash of 52 crores and a small loan of 11 crores. Thus the enterprise value is 319 crores. Against this, the company has an inventory of 231 crores. I am unsure about how much of it is the value of constructed area. I am also unsure about the percentage of constructed area to total salable area. The clarity on these two figures can give a good estimate about the value of total project, and consequently about the margin of safety available.
Qualitatively the company looks great to keep an eye on. I will try to collect more details about the missing two figures tomorrow.
P.s: Found this interesting article while digging the above.