Sunteck Realty - Balance sheet provides cushion in tough times - ICICI Securities
Q1FY21 was a tepid quarter for Sunteck Realty (SRIN) along expected lines with sales bookings of Rs1.0bn (down 46% YoY) in its residential projects owing to complete COVID-19 induced lockdown across Mumbai Metropolitan Region (MMR). We expect sales bookings to improve from Q3FY21 if COVID-19 impact wanes as the company has significant ready inventory of Rs24bn across its BKC and Goregaon projects. A strong balance sheet with net D/E of 0.3x should enable SRIN to sail through the transient COVID-19 induced pain. We maintain our BUY rating with a revised target price of Rs303/share (earlier Rs487) as we now assume an elongated sales cycle in ongoing projects and market value of land for 3msf of rental FSI in its ODC, Goregaon project vs. development of these rental assets over FY20-23E prior to COVID-19.
- Sales momentum decent in light of COVID-19: Along expected lines, SRIN achieved sales of just Rs1.0bn in Q1FY21 (down 46% YoY). While sales bookings may seem optically low, we believe it is decent in light of the complete lockdown in the Mumbai Metropolitan Region. 40% of Q1FY21 sales came from ODC, Goregaon, 48% from Naigaon and 12% from other projects. These sales bookings were achieved through its online marketing campaign christened "Sunteck Aer". As per company, enquiries have started improving from July 2020 onwards, especially for SRIN's near completed inventory in ODC, Goregaon and Naigaon projects. A minor disappointment was the cancellation of Rs810mn for a single unit at its Signature Island, BKC luxury project which led to a revenue reversal in Q4FY20.
- Asset light project addition in Mumbai's extended Western suburbs: SRIN has entered into a Joint Development Agreement to develop 50acres of land in Vasai located in Mumbai's extended Western suburbs. As per company, the project is expected to have a saleable area of ~4.5msf with potential revenue of ~Rs50bn (realisation in excess of Rs10,000/psf) of which SRIN will have 74% revenue share with a development timeline of 5-7 years. We will incorporate this new project acquisition into our estimates post clarity on launch pricing/timelines coming through.
- Annuity business scale up plans on hold in FY21: Prior to the onset of COVID-19, SRIN had plans to create a strong pool of annuity assets over the next 4-5 years at is ODC, Goregaon project by investing Rs16bn to build ~3msf of rental assets (2.4msf of office and 0.6msf of retail). With approvals yet to come for commercial towers at ODC, Goregaon, SRIN has decided to hold back this capex in light of uncertainty over demand for office annuity assets owing to COVID-19 fallout. We believe that this is a prudent strategy until COVID-19 impact becomes clear and will enable SRIN to maintain its low leverage levels at under 0.3x net debt/equity.
Valuations & views
- We like SRIN because it (1) enjoys strong brand recall in Mumbai (2) has strong balance sheet with net debt of 0.3x and (3) asset light model of land acquisition in the Mumbai Metropolitan Region.
- We have valued SRIN on SoTP basis with a combination of DCF-based NAV on FY21E basis.
- We value SRIN's affordable housing foray at Rs5.6bn or Rs40/share. We have assumed a total saleable area of ~10msf on the 100 acre land parcel with project launches over 3 phases and sales/construction cycle from FY19-FY27E.
- We maintain our BUY rating on SRIN with a revised target price of Rs303/share (earlier Rs487) based on 1x NAV. The reduction in our target price is driven by assuming the market value for land for 3msf of rental FSI in its ODC, Goregaon project wherein we had assumed development of the rental assets over FY20-23E prior to COVID-19.
Shares of SUNTECK REALTY LTD. was last trading in BSE at Rs.180.1 as compared to the previous close of Rs. 175.2. The total number of shares traded during the day was 839144 in over 5353 trades.
The stock hit an intraday high of Rs. 182.3 and intraday low of 174. The net turnover during the day was Rs. 147689042.
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