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Resilient performance in tough times

As per Sunteck Realty’s (SRIN) Q1FY22 operations update, the company has clocked healthy sales bookings of Rs1.8bn in Q1FY22 (up 74% YoY) along with quarterly collections of Rs1.7bn. We believe that SRIN has been able to utilise its learnings from FY21 and has been able to clock higher sales even in a Covid impacted quarter by adopting digital channels to drive its sales bookings. With sales momentum sustaining for completed/launched inventory, SRIN is targeting to launch the Naigaon Phase III and Vasai/Vasind projects in FY22E which is expected to boost sales in FY22-23E. We maintain our BUY rating on SRIN with a revised target price of Rs457/share (earlier Rs443) based on 1x NAV adjusting for lower closing net debt as of Mar’21. Key risks to our call are slowdown in the Mumbai property market volumes and fall in residential/commercial prices.

Decent start to FY22 in a tough environment:

SRIN’s Q1FY22 sales bookings of Rs1.8bn were up 74% YoY driven by continued momentum in ODC, Goregaon project (Rs0.8bn), Naigaon (Rs0.7bn) and Rs0.3bn from other projects. SRIN also achieved healthy quarterly collections of Rs1.7bn in Q1FY22 with ODC (Rs0.6bn), Naigaon (Rs0.5bn) and others (Rs0.4bn) being the major contributors. While Q1FY22 sales have been impacted by the second Covid wave along expected lines, SRIN has used its learnings from the Covid impact seen in Q1FY21 and has been able to effectively use digital channels to drive increased sales bookings. Monetisation of completed BKC inventory is a key monitorable over the next 12-18 months.

Slew of launches targeted in FY22E:

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 FY22E which is expected to boost sales in FY22-23E. In addition to these upcoming launches, the company also has an estimated unsold inventory of Rs13bn in ODC, Goregaon project (Rs9-10bn 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

Borivali project acquisition an additional positive:

SRIN has recently acquired a 7acre land parcel in Borivali West (Mumbai’s Western suburbs) on JDA basis where it will have an effective 72% revenue share in the development of a luxury residential project with a saleable area of ~1msf. Assuming a launch price of Rs14,000/psf in FY22E and construction cost of Rs5,000/psf with 5% YoY escalation in selling price and costs, we estimate NAV accretion of Rs2.7bn (Rs 19/share) from this project.

Valuations & views

* We like SRIN because it (1) enjoys strong brand recall in Mumbai (2) has strong balance sheet with net debt of 0.2x 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 FY21 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 Rs457/share (earlier Rs443) based on 1x NAV accounting for lower FY21 closing net debt.

* Key risks to our call are slowdown in the Mumbai property market volumes and fall in residential/commercial prices.

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