IGI Logo

Growth gem in making!

Expect to clock pre-sales CAGR of 35% over FY24-27; Initiate with BUY rating

Expect to clock pre-sales CAGR of 35% over FY24-27; Initiate with BUY rating SignatureGlobal India (SIGNATUR) began its operations in 2014 and in just a decade, it has become one of the leading real estate developers in the DelhiNCR market. The company commenced its journey in the affordable and low/mid-income housing segment by leveraging the state government’s housing policies. Through its standardized offerings and quick turnaround strategy, SIGNATUR has scaled up rapidly and delivered a 42% CAGR in pre-sales over FY21-23. Its agility in adapting to changing market preferences has enabled SIGNATUR to foray into the premium segment, which doubled its pre-sales to INR73b in FY24. Its strong execution capabilities have enabled it to churn the capital and gear up with a strong ~30msf project pipeline to be launched over the next two years. We, thus, expect the growth momentum to remain intact and expect SIGNATUR to deliver 35% CAGR in pre-sales over FY24-27E to INR178b. The management’s disciplined land acquisition strategy has enabled it to curtail costs and report margins of over 35% (better than peers). We initiate coverage on SIGNATUR with a BUY rating and a DCF-based target price of INR2,000, implying 38% upside potential. Key risks: 1) High concentration in Gurugram, 2) inability to replenish its project pipeline, and 3) slowdown in demand.

Solid track record of execution in just one decade of operations

Since commencing operations in 2014, SIGNATUR has focused on the underserved segment of affordable and mid-income housing in Gurugram through the state government’s policy. Development through government initiatives has allowed the company to improve its cost economics and gain exposure to a wider customer base. Its quick turnaround strategy (land acquisition to launch) has led to a rapid scale-up. Further, its focus on value home products led to oversubscription (3x demand on average) of units at the time of launch. In a short span of a decade, the company has sold over 32,000 units or ~25msf and reported a pre-sales CAGR of 63% over FY21-24. Its standardized offerings with respect to design, layout and adoption of construction technology have helped SIGNATUR shorten its construction cycle and reduce the cost. As of Mar’24, the company has delivered 6msf and expects to deliver 16msf by FY26, within just one decade of operations, whereas some of its peers took more than a decade to reach this scale.

Exposure to strategic locations of burgeoning Gurugram market

Right from the onset, the management has set its sights on the fast-growing Gurugram and Sohna markets in Haryana. In CY23, Gurugram’s residential demand surpassed its CY09 highs and reported absorption of over 21,000 units. However, we believe the market is still some distance away from unlocking its full potential, considering some key infrastructure projects that have been delivered in Gurugram over the last decade, which can continue to result in job creation and attract migration. Unlike West or South India, Gurugram is the only

metro city and the commercial hub in North India, serving a population of 400m across key states. Thus, supply constraints remain the key barrier to unlocking growth potential in Gurugram. SIGNATUR, with its fast turnaround and assembly line kind of approach, will be the key beneficiary of this burgeoning market. Through its deep understanding of the Gurugram market, SIGNATUR has gained access to strategic locations like Sohna Road, SPR, and the Dwarka Expressway, which will witness both volume and realization growth.

Shifting focus to premium segment with strong project pipeline

SIGNATUR’s agility in adapting to changing market needs has enabled it to foray into the premium housing segment amid increasing preference for larger homes. The company launched its first premium project in 4QFY24, which was sold out within 48 hours with 5.4x subscription. Its second project, with a larger ticket size, has also received a strong response, with 85% of inventory sold out within the launch period. SIGNATUR targets to launch 16msf of projects across the mid-income and premium segments over the next two years. We, thus, expect SIGNATUR to clock 35% CAGR in pre-sales over FY24-27E.

Strong cash flows to enable continued investment

In FY24, SIGNATUR generated OCF of INR9b and raised primary capital of INR6b through IPO. It spent INR14b on land acquisition in FY24 and aims to spend aggressively on land acquisition as it continues to replenish its project pipeline. In FY25, SIGNATUR expects OCF to increase to INR22b, of which it will spend INR15b on land acquisition and the rest on debt reduction. As a result, the company’s net debt of INR11b as of Mar’24 will turn into net cash by FY25 end, which will further strengthen its balance sheet. Over FY25-27, we expect SIGNATUR to generate cumulative OCF of INR95b, leaving ample room for growth.

Margin improvement on cards with focus on premiumization

SIGNATUR’s erstwhile product mix was tilted toward the affordable and mid-income segment, which constrained its gross margins to ~20% over FY21-24. That said, the company’s disciplined land acquisition strategy and a jump in realization in Gurugram have restricted the cost of land to 10-15% of revenue. Its premiumization strategy will drive further margin improvement ahead. While SIGNATUR expects embedded EBITDA margin to improve to 35%, our calculation of cost economics suggests EBITDA margin can increase to over 40% over FY25-27 for the upcoming project pipeline. These margins will be reflected in P&L with a lag. As the company delivers 16.4msf of ongoing projects over the next two years, we expect SIGNATUR to clock a CAGR of 105% in revenue over FY24-26E and EBITDA/PAT increasing multifold to INR13b/9.6b respectively

Valuation and view: Valuations yet to capture future growth potential

* 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 35% CAGR in bookings over FY24-27E 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 NPV method, we value SIGNATUR’s existing project pipeline of ~30msf at INR150b. Thus, the current valuation implies 30% of 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.

* At the current valuations, SIGNATUR trades at 5x implied EV/EBITDA on FY26E pre-sales, while comparable peers are trading above 8-10x EV/EBITDA, further confirming the discounted valuation.

* We initiate coverage on SIGNATUR with a BUY rating and DCF-based TP of INR2,000/share, implying 38% upside potential.

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html

SEBI Registration number is INH000000412