After a tepid H1FY21, Sunteck Realty (SRIN) clocked robust sales bookings of Rs3.5bn in Q3FY21 aided by Avenue 4, ODC launch which has enabled it to report a 6% sales booking growth in 9MFY21 at Rs6.5bn. With sales momentum sustaining for completed/launched inventory, SRIN is targeting to launch the Naigaon Phase III and Vasai/Vasind projects in H1FY22 which is expected to boost sales in FY22-23E. We maintain our BUY rating on SRIN with a revised target price of Rs437/share (earlier Rs303) based on 1x NAV. The increase in our target price is driven by assuming higher market value for land for 3msf of rental FSI in its ODC, Goregaon project and including business development value of new projects additions in Vasai/Vasind. Key risks to our call are slowdown in the Mumbai property market volumes and fall in residential/commercial prices.
- Sales momentum recovers in festive season: SRIN achieved sales of Rs3.5bn in Q3FY21 (up 7% YoY) aided by strong response to launch of new inventory at Avenue 4, ODC project. SRIN also achieved its best ever quarterly collections of Rs2.5bn in Q3FY21 (up 52% YoY and 79% QoQ) which enabled the company to reduce its consolidated net debt by Rs0.3bn QoQ to Rs7.6bn (net D/E of 0.3x). While H1FY21 sales bookings were impacted by Covid, the strong bounce back in Q3FY21 has enabled SRIN to report a 6% sales booking growth in 9MFY21 at Rs6.5bn.
- Slew of launches targeted in H1FY22: As per SRIN's management, in light of the sales momentum sustaining for completed/launched inventory, the company is targeting to launch the Naigaon Phase III and Vasai/Vasind projects in H1FY22 which is expected to boost sales in FY22-23E. In addition to these upcoming launches, the company also has an estimated unsold inventory of Rs14bn in ODC, Goregaon project (Rs10bn in Avenue 4 and balance in completed/nearing completion Avenue 1 and 2 phases) and Rs5bn in the Naigaon Phase 1 and 2 affordable housing project. Apart from its existing portfolio of projects, the company continues to pursue business development opportunities through an asset light JDA model. Over the long term, SRIN's affordable housing projects are expected to contribute 50% of sales bookings.
- Annuity business scale up plans on hold in FY21: Prior to the onset of Covid, 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 have also assumed a business development value of Rs10bn for Vasai/Vasind acquisitions.
- We maintain our BUY rating on SRIN with a revised target price of Rs437/share (earlier Rs303) based on 1x NAV. The increase in our target price is driven by assuming higher 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 and including business development value of new projects additions in Vasai/Vasind.
- Key risks to our call are slowdown in the Mumbai property market volumes and fall in residential/commercial prices.
Shares of SUNTECK REALTY LTD. was last trading in BSE at Rs.344 as compared to the previous close of Rs. 348.6. The total number of shares traded during the day was 62123 in over 2302 trades.
The stock hit an intraday high of Rs. 353.15 and intraday low of 342.75. The net turnover during the day was Rs. 21692654.