Buy Sunteck Realty Ltd For Target Rs.745 by Motilal Oswal Financial Services Ltd
Strong quarter; ~65% presales guidance achieved
The uber-luxury segment takes center stage
* Sunteck Realty (SRIN) reported presales of INR6.35b in 3QFY25, up 40% YoY (in line with our estimate of INR6.5b). Traction in uber-luxury projects nearly tripled, with bookings of INR4.2b, or 66% of overall presales. The upper-middle-income segment accounted for 19% of presales.
* During 9MFY25, the company achieved presales of INR16.6b (up 34% YoY), fueled by the strong traction in uber-luxury projects. SRIN achieved 65% of the total presales guidance for FY25 (INR25b).
* Collections declined 23% YoY to INR3.36b for 3QFY25. SRIN achieved INR9.45b (flat) collections for 9MFY25. Its collection efficiency was 57%.
* The net debt-to-equity ratio stood at zero, with a net cash surplus of INR610m at the end of 3QFY25. The company remains debt-free and intends to utilize the surplus cash to further strengthen its project pipeline.
* P&L performance: Revenue jumped ~4x YoY to INR1.6b, while it was 54% below our estimate as the company is only recognizing revenue from the Naigaon and BKC projects. The company reported EBITDA of INR484m vs. a loss of INR148m in 3QFY24. EBITDA margin came in at 29.9% (vs. 22.1% in 2QFY25). For 9MFY25, it reported an EBITDA of INR1.2b compared to a loss of INR364m for 9MFY24. For 3QFY25, Adj. PAT stood at INR425m vs. a net loss of INR97m in 3QFY24.
* For 9MFY24, SRIN reported revenue of INR6.5b that surged 369% YoY (58% of our FY25 estimate). Reported EBITDA/Adj. PAT stood at INR1.2b/ INR1.0b, with an 18.1%/15.4% margin. For 4QFY25, Avenue 4 is likely to come for recognition; hence, we expect to meet our FY25 estimate.
Key management commentary
* Launches and guidance: Sunteck will launch the new phase of ODC (Goregaon West) in 4QFY25, with a GDV of INR30b (two towers with 0.8- 1.0msf area, of which ~0.5msf in one tower to be launched). Sunteck will also launch the beach residences with a GDV of ~INR2.5-3b along with Sunteck Skypark in Mira Road, with a GDV of ~INR6-7b. The project in Bandra West (having a GDV of INR10b) and the Burj Khalifa Community, Dubai (with a GDV of INR90b) would be launched in FY26.
* Guidance: Aided by the strong launch pipeline, management guided a presales growth of 25-30% for FY26.
* Dubai: The project will have only two towers, with a total area of 1msf. SRIN plans to sell it in 3-4 years following the launch, as guided by the management in 2QFY25.
* Business development: SRIN added the Nepean Sea project-2 with a total GDV of INR24b, which translated into a total GDV of INR54b for the said project. The potential saleable area for the Nepean Sea projects is now increased to 0.25-0.28msf. Cumulative GDV as of 9MFY25 stood at INR402b, with the acquisition of a recent project.
* The company will not compromise on the margins while acquiring, and most of the acquisitions will be skewed towards the uber-luxury segment as it is experiencing strong demand.
* SRIN would start the construction of commercial in Avenue 5, as the company has secured an important approval. Average annual rental income at INR2.5b. The timeline for commissioning remains intact, which is by the end of FY27.
Valuation and view
* We expect SRIN to deliver a healthy 28% presales CAGR over FY24-26, fueled by a ramp-up in launches from both new and existing projects. Further, its sound balance sheet, strong cash flows, and the partnership with IFC would spur project additions and drive sustainable growth.
* We value its residential segment based on the NPV of existing pipelines and its commercial segment based on an 8% cap rate on FY25E EBITDA. We also assign INR14b of value to future project additions through the IFC platform.
* We reiterate our BUY rating on the stock with a TP of INR745, implying a 51% upside potential.
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