PL Stock Report: Sunteck Realty (SRIN IN) - Company Initiation - Building foundations in MMR - BUY

Sunteck Realty (SRIN IN) - Param Desai - Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: BUY | CMP: Rs397 | TP: Rs565

Company Initiation - Building foundations in MMR

We initiate coverage on Sunteck Realty (SRIN) with ‘Buy’ rating and DCF based NAV with TP of Rs565/share, 42% upside from current levels. SRIN, with its proven ability to market ultra-luxury projects, aggressive and multi-pronged land acquisition capabilities in various micro markets across Mumbai Metropolitan Region (MMR) is an interesting play on Mumbai’s high value real estate market. We expect company pre-sales to grow 2x over next 3 years aided by ongoing projects and strong new launches pipeline. Further given likely strong cash flow generation (Rs8-10bn over FY23-26E), we see SRIN to step up new project additions which will be a key catalyst for stock performance. Adoption of asset light model has enabled the company to acquire scale without straining its balance sheet and this will likely continue in new project additions too. We expect Revenue/EBIDTA CAGR of ~83%/123% over FY23-26E. Initiate ‘Buy’.

Pivoted focus on asset light model: SRIN follows an asset light strategy (JV/JDA) in a capital intensive real estate market of MMR; an asset-light business model and aggressive management known for its ability to recognize and execute opportunities at early conception. Over last 3-4 years, SRIN has acquired 25msf in MMR through JDA and JV route. Despite being aggressive in the MMR, cost of acquisition has been quite low at less than Rs 1,000 psf for the portfolio acquired since 2018 (assuming construction spend to be done for JD partners) – a key advantage.

Pre-sales to grow 2x over FY23-26E: SRIN’s pre-sales have grown at 10% CAGR from FY20-23 to Rs16bn. Currently, SRIN has five ongoing projects and three new launches (Kalyan, Borivali & Napean Sea Road) over FY23-26E. This would aid pre-sales to grow ~2x over FY23-26E. Kalyan project will be integrated township while Borivali and Napean Sea Road project will be mid and high end residential projects. We have factored in ~Rs 30bn pre-sales by FY26E from current level of Rs16bn in FY23 at 23% CAGR over FY23-26E.

Healthy Balance sheet: Adoption of JV/JDA structures has enabled it to acquire scale without straining the balance sheet (FY23 net gearing of 0.10x) and minimizing outflow on land acquisitions. SRIN’s business model and its strategy to turn around projects quickly have kept the leverage low.

Outlook and valuation: SRIN follows project completion method. We expect 6x growth in revenues over FY23-26E as projects like Maxx world Phase 1 (Naigaon), Avenue city 4 (Goregaon), One world (Naigaon) and Sky Park (Mira road) will start getting recognized. The company will also generate strong cash flow and materially step up land acquisitions and project launches. We value SRIN through DCF based NAV method and recommend ‘BUY’ with a SOTP based TP of Rs 565/share.

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