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Focusing on profitable growth

Strong brand presence; robust portfolio

* Sunteck Realty, one of the leading real estate developers in the Mumbai Metropolitan Region (MMR), has a presence in South & Central, Western and Eastern Suburbs. Its notable projects are Sunteck Signature (BKC), Sunteck Beach Residences (Vasai), Sunteck City (Goregaon) and Sunteck West World (Naigaon).

* Over the years, the company has acquired 10 projects with total GDV of INR402b. It also launched six projects from FY21 to FY24, reporting a CAGR of 23% in pre-sales.

* Given strong traction in the uber-luxury segment and the upcoming launches in MMR and Dubai, we expect the company’s pre-sales to grow to INR31.2b in FY26, representing a CAGR of 28% during FY24-26.

* The company has a strong balance sheet with a net cash surplus of INR0.6b and robust cash flows (cumulative OCF of INR21b over FY25-27E). With this and the recent joint development platform with IFC for green housing projects, the company is expected to enhance its future growth potential.

Low-risk luxury strategy

* Sunteck is among the first few developers to tap into unexplored markets of MMR – BKC, Goregaon, Naigaon, Vasai, Kalyan, etc., and has evolved them through its luxury offerings. It has also extended its brand from residential-only to the commercial real estate sector through office spaces and retail developments.

* Sunteck has shifted from its initial outright land purchase approach to an asset-light approach by entering into development management agreements or forming joint ventures since FY18. This strategy for luxury real estate has helped Sunteck to minimize capital expenditure, thereby maintaining asset position, faster execution and scalability.

Analyst Day – site visits

* Sunteck Beach Residences (SBR): SBR is a premium residential project in Vasai, a coastal area in the northern suburbs of Mumbai. Launched in FY23, the development is designed to offer a luxurious living experience with a focus on beachfront views, serene surroundings, and high-end amenities expected to be delivered by FY27-28. Spread across 50 acres with ~4.5 acres of commercial space, it has tall 35-storey towers with variants of luxurious apartments, including 2BHK and 3BHK, with overall area ranging from ~600-1100 sqft carpet and a ticket size ranging from ~INR11m to INR15m. Villas would be in the range of ~INR60-70m. About 80% of the land is open for greenery. It plans to develop villas/row houses and even a five-star hotel within the property.

* Sunteck World: It is designed as a multi-phase, mixed-use development at Naigaon launched in FY18 by the name West World. It caters to both affordable and aspirational affordable residential buyers. The project aims to provide a comprehensive lifestyle experience by combining residential spaces with commercial and retail zones. The residential units include affordable and midrange housing, with potential for luxury towers as well. The project has a total land parcel of ~150 acres and currently has four ongoing phases, which are West World, Max World, One World and Ultra. These were launched between FY18 to FY24. Of the four, the former two are completed, whereas One World and Ultra are expected to be delivered by 2026 and 2029, respectively. The apartments come in various configurations like 2BHK and 3BHK with overall area ranging from ~550-850 sqft and a ticket size ranging from ~INR5m to INR9m.

* Sunteck Sky Park: It is a luxury residential project located in Mira Road. The project targets high-income individuals, corporate professionals, and affluent families who want to live in a luxury residential complex with modern amenities. The local infrastructure developments with quick driveway to nearby railway and metro station make it easily accessible and well connected. The project offers 45-storey towers of 2BHK and 3BHK homes with overall area ranging from ~650-1100 sqft and a ticket size ranging from ~INR15m to INR30m.

* Sunteck Nepean Sea Site: It is an upcoming luxury residential project located in South Mumbai offering ultra-luxury units. This project is aimed at targeting high/ultra-high net worth individuals looking for exclusive and luxurious living spaces. This project has a total of 1.5-acre land parcel with two plots and cumulative estimated GDV of INR54b. The project is well connected to the Coastal Road, thereby connecting the Bandra-Worli Sea Link. It also has a beautiful sea view with connected ongoing development of Coastal Garden, a long ~200 acre garden being built by Brihanmumbai Municipal Corporation (BMC). The project is yet in the designing stage and is estimated to be launched within 4-6 months.

Key management commentary

* Execution: SRIN has strengthened its execution capabilities in the last few years by building an in-house construction team and only outsourcing labor. This allows Sunteck to better control execution and maintain high-quality standards and timely deliveries, which establishes a strong brand recall in the micromarket of operations.

* Approvals: The company occasionally faces delays in approvals due to various challenges linked to regulatory approvals, local government permissions, and clearances from various authorities. However, its exceptional leadership and strong project execution capabilities ensure that such challenges are effectively navigated, allowing the company to stay on track and continue to deliver highquality developments.

* Margins: In new project acquisitions, SRIN focuses on high-margin opportunities in line with its strategy of focusing on profitable growth. Most of its acquisitions are in the luxury areas, driven by strong market demand. Sunteck aims to maintain profitability by tapping into the growing demand for premium developments. This strategy will help drive sustainable growth while ensuring robust returns.

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 INR746, implying a 59% upside potential.

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