Recommendation from Construction - Residential & Commercial Complexes Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.

GANESH HOUSING CORPORATION LTD : STRUCTURED TO PERFORM

HERE IS WHY
✓ Increasing demand for housing and commercial spaces
✓ Strong financial metrics
✓ Attractive valuation and debt-free status

A robust economy with stable growth can lead to increased disposable incomes, enabling more people to afford homes. This, in turn, can boost the demand for home loans, benefiting housing finance companies. As the Indian economy is likely to remain one of the best performing economies globally, we have selected Ganesh Housing Corporation Ltd. (GHCL), a leading real estate developer based out of Gujarat, as our choice scrip. GHCL specialises in organised housing and construction, providing quality living and commercial spaces. The company also plans to expand its presence in special economic zones (SEZs) and township development, further diversifying its portfolio in the coming years. India’s residential real estate sector has shown strong performance in recent years, and these favourable conditions are expected to continue.

Investor confidence remains high, fuelled by the prospect of future interest rate cuts, although these were recently paused. Expectations remain that rate cuts could occur in the next two quarters, which, combined with stable economic conditions, should drive growth in high-demand real estate. Ahmedabad has mirrored this trend, with residential sales up by 11 per cent year-over-year, totalling around 4,600 units.

In FY24, GHCL reported a total income of ₹898.94 crore, reflecting a 44.87 per cent increase from ₹620.82 crore in the previous year. Its revenue from operations was ₹892 crore, up by 43.68 per cent from the previous year’s ₹621.52 crore. Additionally, the key financial metrics for FY24 include a return on equity (ROE) of 29.72 per cent, a return on capital employed (ROCE) of 39.56 per cent. The company is almost debt free.

In Q2FY25, the company’s revenue reached ₹249.7 crore, reflecting a remarkable year-over-year increase of 52 per cent compared to Q2FY24. The EBITDA for this quarter was recorded at ₹215 crore, showcasing a significant year-over-year growth of 76 per cent. The EBITDA margin improved to an impressive 86.1 per cent, representing an increase of 11.7 per cent from Q2FY24. The PAT for Q2FY25 was reported at ₹158.5 crore, which is an outstanding increase of 84 per cent year-over-year with a PAT margin of 63.5 per cent, up by 11.1 per cent compared to Q2FY24.

The consistent net debt-free status throughout FY24 and continuing into Q2FY25 highlights the company’s robust financial health. The stock is currently trading at a price-to-book ratio of 5.4 times, which reflects a premium valuation relative to its book value. However, when we compare the company’s price-to-earnings (PE) ratio of 19.3 times to the industry average PE of 32 times, it becomes evident that the company’s valuation appears attractive.

Additionally, the price to earnings growth (PEG) ratio stands at a mere 0.25 times, indicating that the stock may be undervalued relative to its growth prospects. Furthermore, the company maintains a debt-to-equity ratio that is nearly zero, suggesting a strong balancesheet and minimal financial leverage. Complementing these metrics, the operating cash flow for FY24 is robust at ₹638 crore, underscoring the company’s solid financial health and operational efficiency. Looking at these parameters we find this housing company a good BUY at its current price.