Sunteck Realty Rating- buy; Pre-sales expected to double in three years

Sunteck Realty Rating: buy; Pre-sales expected to double in three years

A near-doubling of Sunteck’s project portfolio has happened post-Covid and as the monetisation of land parcels commences, we see sales delivering a 25% CAGR over FY22-25E. 70%+ of sales come from the affordable & mid-income segment of the Mumbai residential sector, where competition from organised developers is limited. Net gearing is low as expansion has been via a capital-efficient partnership model. Initiate at Buy with price target (PT) set at 1-yr forward net asset value (NAV) of Rs 621/share.

Pre-sales set to jump: We believe Sunteck is on a path to double its pre-sales to Rs 25 bn in three years as the pipeline of new projects built during Covid comes to fruition. Tr-Q4 pre-sales are already at a record Rs 15 bn, and we think the FY23 +37% growth guidance is within reach. A strong housing cycle, multi-segment approach, and timely launches are key growth drivers.

Timely project additions provide visibility: 70% of Sunteck’s ~50m sf project pipeline has been built since 2018 and all additions since 2018 have been in the city. In addition, the 2018-21 period was a cyclic low from an asset prices perspective; thus, Sunteck’s additions were well-timed.

Strong balance sheet: The company has effectively used the partnership model while adding projects. Over the past ~6 years, net gearing has stayed in the 0.1-0.2x range and operational cashflows have generated Rs 6 bn in surplus over the past nine quarters. Balance sheet discipline, operational surplus, and rising monetisation should provide growth headroom.

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Initiate at Buy: We initiate coverage on Sunteck with Buy with a price target of Rs 621/share, offering 35% potential upside. The PT is set at 1-year forward NAV, and we believe that as the pre-sales uptick progresses, the stock should trade closer to the NAV. Sunteck’s larger peers that have adopted the partnership model for growth (GPL, Lodha and Prestige) trade at NAV premiums. Our earnings are below consensus as we are more conservative on project completion timelines; though we think investors will track pre-sales in the scale-up phase – key to outperformance.