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Operationally stable quarter, but P&L lags recognition

INR34b of launches in 2HFY25 ensures achievement of guidance

* Sunteck Realty (SRIN) reported pre-sales of INR5.2b in 2QFY25, up 33% YoY (13% lower than our estimate). Traction in uber-luxury projects remained intact, with bookings of INR1.6b, or 31% of overall pre-sales. The upper mid-income segment accounted for 41% of pre-sales.

* During 1HFY25, the company achieved pre-sales of INR10.3b (up 31% YoY), fueled by the strong traction in uber-luxury projects. Sunteck achieved 41% of the total pre-sales guidance for FY25 (INR25b).

* Collections increased 25% YoY to INR2.7b, and Sunteck generated an OCF of INR1.9b. The company remains debt-free and intends to utilize the surplus cash to further strengthen its project pipeline.

* SRIN achieved INR6.1b (up 21% YoY) for 1HFY25; collections stood at 37% of our FY25 estimate.

* P&L performance: Revenue jumped ~7x YoY to INR1.7b, while it was 54% below our estimate as the company is only recognizing revenue from the Naigaon project. The company reported EBITDA of INR0.4b vs. a loss of INR141m in 2QFY24. EBITDA margin came in at 22% (vs. 9.9% in 1QFY25). PAT stood at INR346m vs. net loss of INR139m in 2QFY24.

* For 1HFY25, Sunteck achieved revenue of INR4.9b, (up 408% YoY, and 44% of our full estimate). Reported EBITDA/Adj. PAT stood at INR688m/ INR574m, with 14.2%/11.8% margin. For 2HFY25, Avenue 4 is expected to come for recognition; hence, we expect to meet our FY25 estimate.

* However, Avenue 4 recognition might spill over to FY26E; hence, we cut our FY25 estimates for revenue/EBITDA/Adj. PAT by 21%/39%/36%, while our FY26 estimates are up by 16%/28%/35%.

Key management commentary

*  Launches and guidance: SRIN launched Sunteck Ultra World Naigaon, which has a potential GDV of INR6b, and plans to launch one tower in ODC with INR15b GDV, two towers in SBR Vasai with INR4-5b GDV, one tower in Sky Park Mira Road with INR6-7b GDV, and two towers at Crescent Park Kalyan with INR3b GDV in 2HFY25. Hence, SRIN plans to launch projects with a cumulative GDV of INR34-36b in the reminder of the year. SRIN is confident to launch projects in Nepean Sea, Bandra West, and Dubai in FY26.

* Dubai: The project will have only two towers, with a total area of 1msf and SRIN plans to sell it in 3-4 years after the launch.

* Business development: SRIN acquired a project in Bandra Bandstand with a potential GDV of INR10b, which takes its total GDV to ~INR380b. SRIN would double its GDV value every three years. Hence, from the base of FY24, the company should reach a GDV of INR520b by the end of FY27E.

* For Borivali projects, its partner is waiting for elections to conclude and clarity on SDR policy to emerge. Subsequently, SRIN will go ahead with approvals. Currently, projecting the launch timeline is difficult.

* SRIN to start construction of commercial in Avenue 5, as the company has secured an important approval. The timeline for commissioning remains intact, which is by the end of FY27.

Valuation and view

* We expect Sunteck to deliver a healthy 28% pre-sales 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 52% upside potential.

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