Ambrosa Developers pre-sold Rs 5,000 crore of flats this year but books revenue on completion, so reported revenue is Rs 2,200 crore. Value it on net asset value instead of P/E.

On net asset value Ambrosa is worth about Rs 5,597 crore, Rs 224 a share, so at Rs 240 it trades near 1.07x NAV. P/E misleads because booked revenue reflects flats sold two to three years ago: the same price is 19.5x this year's earnings and about 10x year 7's. NAV discounts the cash still to come from sold flats, unsold flats and the land bank, then subtracts net debt.

A tailor who takes orders in January and delivers suits in March books nothing in January, however busy the shop is. A developer is the same tailor with a two to three year gap. Pre-sales measure the business being done today; booked revenue measures the business done two or three years ago, so any multiple of booked earnings is a multiple of old news. When pre-sales jump, as Ambrosa's did from Rs 2,300 crore to Rs 5,000 crore in two years, the P/E looks expensive now and cheap later with no change in the company.

Split the business into buckets of future cash, value each, and subtract what is owed. For every bucket the cash to count is money still to come in, less money still to spend, less tax on the profit, discounted for how long it takes. Customer advances already collected are in the cash balance, which is why net debt is taken after them and why only the Rs 5,000 crore still owed counts for sold flats. Tax is on accounting profit: a 28% margin on the Rs 9,550 crore of sold flats not yet booked, 32% on unsold flats, and Rs 5,500 crore on the land bank after its book cost. This is net asset valueFor a developer, the present value of the cash its projects and land will produce, less its net debt; it values the business as a pipeline rather than as a stream of reported profits. in its simplest form.

At Rs 240 the market pays about 1.07x NAV, a small premium that amounts to paying for land Ambrosa has not bought yet. The land bank is the largest and least certain bucket: it is five years away and its value depends on prices and building costs no one knows today. A 10% fall in the land bank's sale value removes Rs 2,000 crore of inflow, about Rs 34 a share after tax and discounting. Close with that sensitivity and with the pre-sales trend, the leading indicator the NAV quietly assumes will continue.