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Shahad project: Another feather in the cap

Sunteck Realty (SRIN) has announced a new residential project acquisition of 10msf in Shahad, located in Mumbai Metropolitan Region’s (MMR) extended Eastern suburbs. The project has been acquired under the asset light JDA model in which SRIN may have 75-80% revenue share. Assuming development over FY24-35E, we estimate gross revenue of Rs91.2bn (SRIN share at Rs72.6bn) with pre-tax operating surplus of Rs26.6bn and NAV accretion of Rs14.4bn (Rs103/share). We maintain our BUY rating on SRIN with a revised target price of Rs580/share (earlier Rs475) based on 1x NAV incorporating the new Shahad acquisition. SRIN has now added four new projects since Mar’20 with the three earlier projects in Vasai/Vasind/Borivali adding 8msf of saleable area. Key risks to our call are slowdown in the Mumbai property market volumes and fall in residential/commercial prices.

* Shahad project cements SRIN’s position in MMR’s extended suburbs: SRIN has announced its plans to develop an aspirational luxury integrated residential township spread over 50 acres with saleable area of 10msf (2.9x FSI on carpet area) at Shahad, Kalyan located in MMR’s extended Eastern suburbs. The new project has been acquired under the asset light Joint Development (JDA) revenue share model with ~75-80% of revenues to accrue to SRIN with 100% of construction costs to be borne by SRIN. This is the fourth project acquisition post Mar’20 from SRIN with the company having earlier done three project acquisitions at Vasai, Vasind and Borivali having cumulative saleable area of 8msf. SRIN now has a significant presence in peripheral areas of MMR with 11.8msf of area in MMR’s extended Western suburbs (7.3msf in Naigaon and 4.5msf in Vasai) and 12.6msf in MMR’s extended Eastern suburbs (2.6msf in Vasind and 10.0msf in Shahad).

* Shahad project estimated to add Rs103/share to NAV: Current residential prices in the vicinity of SRIN’s Shahad project hover between Rs6,000-6,500/psf on saleable area basis (Rs10,000-10,500/psf on carpet area basis) for similar Tier 1 developments (Birla Vanya). Typical ticket sizes for 1BHKs and 2BHKs in this micro-market range between Rs5-10mn/unit. We assume a FY24E launch as the land owner (Amar Dye Chem) may require time to secure land conversion approvals. We build in project development over FY24-35E across five phases of 2msf each with a base launch price of Rs6,700/psf and construction cost of Rs3,500/psf and 5% annual escalation in selling prices and costs. We estimate the project to generate gross revenue of Rs91.8bn of which SRIN revenue share is Rs72.6bn and project cost of Rs45.9bn which implies pre-tax operating surplus of Rs26.6bn over the life of the project. Assuming a 30% tax rate and WACC of 11%, we arrive at a NAV of Rs14.4bn or Rs103/share for the project.

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