Buy Sunteck Realty Ltd For Target Rs.700 - Emkay Global
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Project pipeline intact but timely approvals remain key
* Q3 key highlights: 1) Steady P&L performance with revenues at Rs1.3bn and EBITDA margin of 27% (9MFY22: 26%). Notably large part of the revenue recognition is attributable to ODC project and partly to Naigaon Westworld. 2) Strong operational numbers given absence of any new launches driving 9MFY22 presales / collections at Rs8bn / Rs6.5bn; up 23% / 41% YoY respectively. 3) FSI related premium payment amounted to Rs1.3bn taking total rebate related premium payment to ~Rs2bn for the year.
* Guidance: Owing to approval related delays pre-sales guidance for FY22 is revised down to Rs13bn vs. Rs14+bn while FY23 guidance at Rs18bn vs. Rs20-22bn. Vasai launch is now anticipated in FY23 (likely Q1), while the Borivali launch is in FY24. Overall, the developer targets to launch 3.35msf in FY23 and 4.85msf in FY24, out of the total remaining launch pipeline of 36msf. The company aims to add another +20msf to the launch pipeline over the next 12-18 months.
* Retain our Buy rating with a revised Dec’22E TP of Rs700: We believe that Sunteck is set to reap the benefits of its strategically-located, high-value land acquisitions (>20msf of JDAs signed in the last 12-18 months). We forecast sales to more than double over FY22- FY24. Retain our Buy with a Dec’22E TP of Rs700.
* Q3 and 9MFY22 pre-sales mix
ODC accounted for 39% of both Q3 and 9M pre-sales and largely coming from existing inventory as the higher floor inventory was launched at the end of Q3. The affordable segment (Naigaon + Vasind) share in overall sales stood at 37% / 32% for 9M / Q3 respectively. Luxury, on the other hand, continue to lag with management looking to restart and revamp marketing efforts for its BKC project.
* ODC and Naigaon will continue to drive Q4FY22 pre-sales.
The developer has launched both 1) higher floor inventory at ODC, likely amounting to Rs1.8-2bn and 2) Naigaon Phase 3 with a saleable area of 1.25msf. Hence, it remains confident of achieving Rs5bn in pre-sales in Q4FY22.
* Retain Buy rating with a revised Dec’22E TP of Rs700.
We believe that Sunteck is set to reap the benefits of its strategically-located, high-value land acquisitions. Investment positives are: 1) favorable supply dynamics in key micro-markets, as seen from reduced inventory overhang in Vasai (~14 months) and in MMR (~26 months); 2) absence of other prime or Grade-A developers in its core growth micro-markets; 3) unique product positioning—aspirational luxury project in Vasai and luxury project in Borivali (W); 4) management’s ability to identify high-value micro-markets (BKC, ODC) and grab firstmover advantage—this has translated into industry-leading project IRR (>20%); and 5) comfortable B/S leverage (Net Debt/Equity of ~20%).
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