Roti, kapda aur makaan are the bare necessities for us humans. The fact that no matter where the economy goes, these three essentials will be required is a no-brainer. Housing is one of the most scalable businesses.
It is going to grow with population growth, urbanisation, rising income levels in rural India and an increase in the number of nuclear families.
Here are the best players in their fields which are going to be benefited.
Real-estate companies have created a bad name for themselves due to their fragility and delays in projects. But Ashiana Housing has been able to stand out. Ashiana does not play on land bank and has avoided operating in tier-I cities. The company operates in tier-II and tier-III cities, where it has benefited from price rise. Ashiana has also avoided the premium-housing segment and is instead focused on budget housing, where the demand is still intact.
Ashiana has developed trust with time. It fulfils the very basic need of home, without any frills, and provides timely delivery of homes. Moreover, it has more conservative accounting approach; it uses the 'project completed method', which recognises revenues only when a project is handed over instead of the 'percentage completed method', which recognises revenues at various stages of project development. While this hurts Ashiana's reported revenues, making them look uneven, it helps win investor trust.
Perhaps, Asian Paints has decorated with its paints more Indian houses than any other paint company in India. The company's products are available in every segment - from the very basic entry-level distemper to premium decorative paints. Its branding and catchy memorable advertising have a high brand recall.
Its reach in smaller cities is unparalleled. A number of international players have tried their hand and luck in the lucrative decorative-paint market in India. None have, however, managed to dislocate Asian Paints from its position of leadership. Indeed, it's a true leader in the paints segment kyunki har ghar kuch kehta hai.
A subsidiary of HDFC, Gruh Finance provides housing finance in rural and semi-urban areas mostly based in Gujarat, Maharshtra, and some parts of south and central India. Gruh's strength is its credit-evaluation system, which allows it to give loans to un-banked daily-earners. The company specialises in loans for homes and shops and has good asset quality. Its small-ticket loans and credit evaluation have kept net NPAs (non-performing assets) almost nil and net interest margins high.
Finolex Cables derives two-third of its revenues from electrical cables. Though cables are used by electricians for wiring in houses and commercial places, Finolex still has a very high brand recall among retail customers, who prefer its cables over those of other companies. The very strength of Finolex's cables is their high copper content, which imparts them superior quality. This in turn translates into a higher price than what others command. The company is generating healthy free cash flows and its niche operations make it an ideal candidate to bet on with the rising housing needs.
Here you can read about the other articles in this series