Buy Signature Global Ltd For Target Rs.415 by Motilal Oswal Financial Services Ltd
Robust bookings in 3Q; poised to achieve targets
* Signature Global (SIGNATUR) reported 3QFY25 pre-sales of INR27.7b (26% beat), up 119% YoY and flat QoQ.
* Strong pre-sales were aided by volumes of 2.49msf, up 117% YoY and 5% QoQ. During 9MFY25, volumes jumped 127% YoY to 6.9msf.
* For 9MFY25, pre-sales stood at INR86.7b, up 177% YoY (the best ever presales over 9M), achieving 87% of FY25 pre-sales guidance. Additionally, the company has launched projects worth GDV of INR135b (INR90b in 1HFY25) against the full-year guidance of INR160b.
* During 9MFY25, SIGNATUR added 2.9msf at the strategic location of Sector 37D, and parts of the projects in Sector 88A (SCO I & II) have been converted from JDA to Owned. The company continues to focus on consolidation in three micro markets – Sec 71, Sec 37 D, and Sohna.
* P&L performance: In 3QFY25, SIGNATUR reported a revenue of INR8.3b, up 194% YoY/10% QoQ (26% below estimate).
* EBITDA stood at INR135m vs. a loss of INR69m in 3QFY24 and a loss of INR116m in 2QFY25. The margin stood at 1.6% (7% below estimate).
* PAT was INR291m, up 14x YoY/7x QoQ (64% below estimate).
* For 9MFY25, revenue was INR19.7b, up 3.6x YoY (53% of FY25E). EBITDA was INR7m (vs. a loss of INR465m in 9MFY24), and the margin was negligible. Adj. PAT was INR401m vs. a loss of INR238m in 9MFY24. PAT margin was 2%.
Highest-ever 3Q collections
* SIGNATUR achieved its best-ever quarterly collections at INR11b, up 40% YoY/17% QoQ (42% below estimate).
* Collections stood at INR32b in 9MFY25, up 53% YoY. SIGNATUR has achieved 52% of the collection guidance, and management is confident of achieving the remaining target for FY25. Further, the company achieved an operating cash surplus before land investment at INR12.1b.
* In 3QFY25, debt declined to INR7.4b from INR10.1b in 2QFY25 and INR11.6b in FY24
Key highlights from the management commentary
* The company’s focus will continue to be on middle-income housing, and it foresees the consumption trends to be steady with sustained supply.
* The company reported strong pre-sales of INR86.7b in 9MFY25 with successful launches in Titanium SPR and Dakshin on the Sohna Corridor (3,500 units sold with an avg. ticket size of INR25m). The company also achieved INR129b of pre-sales in CY24, showcasing a run rate of INR10b/month.
* Management reiterated its guidance of INR100b pre-sales and INR60b collections for FY25, keeping in mind the upcoming completions lined up.
* By 9MFY25, the company executed 84% of the targeted launch of INR160b and expects to meet its guidance for the full year.
* Of the INR12b operating surplus in 9MFY25, INR5.7b was towards land acquisition, INR4.2b towards reduction in net debt, and INR2.2b towards debt servicing.
* Further, management is confident to achieve a revenue recognition of INR38b for FY25. By 9MFY25, it had already achieved 52% of revenue recognition from 2.7msf of completions, keeping the realization at INR7,000psf.
* For FY26, revenue recognition is expected to be ~INR60b (40-50% more than FY25) with ~16msf likely to be delivered over FY25-26, having a potential GDV of INR110b. Additionally, management is confident of a blended embedded operating margin of 35% for the projects.
* Spending on land would be INR15b for Gurgaon on an annual basis. Management believes Gurugram has a lot of areas for greenfield development, and the company wishes to target those areas.
* In 3QFY25, debt declined to INR7.4b from INR10.1b in 2QFY25 and INR11.6b in FY24. SIGNATUR aims to keep FY25 net debt well below 0.5x of the projected surplus.
* To date, completions stand at 13.5msf. Another 11msf is in the advanced stage of completion, which should be completed by 1QFY27.
* SIGNATUR intends to launch a project worth GDV of IN350b (21.6msf) over FY26-27E. It plans to keep replenishing inventory in the present markets.
Valuation and view
* SIGNATUR reported a strong 63% CAGR in pre-sales over FY21-24, driven by an increase in projects under execution and premiumization. As SIGNATUR gears up with a strong launch pipeline of premium projects, we expect it to deliver a 35% CAGR in bookings over FY24-27 as the growth momentum remains intact.
* Strong pre-sales growth will also lead to a rapid scale-up in operations across the key parameters, e.g., cash flows, revenue, and profitability, which will give confidence in the company's execution capability and future growth potential.
* Based on the NPV method, we value SIGNATUR's existing project pipeline of ~30msf at INR150b. Thus, the current valuation implies 30% of the going concern premium for the company (versus 50-100% for comparable peers), indicating that a large part of future growth potential is yet to be accounted for.
* We reiterate our BUY rating with a TP of INR2,000, indicating a 54% upside potential.
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