Buy Sunteck Realty Ltd for the Target Rs.540 by Motilal Oswal Financial Services Ltd
Strong presales but collection yet to catch-up
The uber-luxury segment drives 58% of sales
* SRIN reported presales of INR6.57b in 1QFY26, up 31% YoY (16% above our estimate). About 92% of total presales in the quarter came from the uberluxury and premium luxury segments.
* Collections were up 3% YoY at INR3.51b in 1QFY26 (21% below estimates).
* Net operating cash flow surplus stood at INR1.08b, up 8% YoY. The net debt-to-equity ratio stood at 0.02x.
* The company added a redevelopment project in Andheri with a development potential of 0.28msf and GDV of INR11b.
* Fitch (India Ratings) has affirmed the long-term credit rating at 'IND AA/Stable'.
* P&L performance: 1Q revenue declined 40% YoY/9% QoQ to INR1.8b (20% miss). EBITDA rose 52% YoY to INR477m (15% beat). EBITDA margin was up 1,543bp YoY at 25.4% (765bp beat). Adj. PAT stood at INR334m, up 47% YoY and in line with estimates. PAT margin stood at 17.8%.
Key concall highlights
* Presales guidance: Aided by the strong launch pipeline, management guided for presales growth of 25-30% in FY26, driven by the uber-luxury and premium-luxury segments.
* Guidance on collections and revenue: Collections should gain momentum once the construction phases move ahead in the coming quarters of FY26. This will lead to more projects coming up for revenue recognition such as Sunteck City – 4th Avenue, as the project has received occupation certificate.
* Launch pipeline: During 2Q-4QFY26, SRIN intends to launch projects with total GDV of INR110b:
* A new phase of Sunteck City ODC (Goregaon West) with a GDV of INR15b (~0.5msf in one tower to be launched)
* Sunteck Beach Residences in Vasai with a GDV of ~INR5-6b
* Sunteck Skypark in Mira Road with a GDV of ~INR10b
* The project in Bandra West with a GDV of INR10b
* Sunteck World in Naigaon with a GDV of INR5b
* Newly added Andheri redevelopment with a GDV of INR11b
* Remaining from Nepean Sea Road with a GDV of INR54b
* Burj Khalifa Community, Dubai: The project will have only two towers with a total area of 1msf and GDV of INR90b. It would be launched in 4QFY26 or early FY27. SRIN plans to sell it in 3-4 years following the launch as guided by management.
* Business development: SRIN has been selected as the preferred developer for the redevelopment of a new residential project located in Andheri, near the Western Express Highway (WEH), Mumbai. The land parcel, spanning ~2.5 acres, offers a development potential of 0.28msf and is expected to generate a GDV of INR11b. The total cumulative GDV target for FY26 will be increased to INR500b from the current INR394b. SRIN has already invested INR3b in land in 1QFY26, which is up 67% vs. FY25.
* SRIN does not intend to compromise on margins for acquisitions, and most acquisitions are expected to be skewed toward the uber-luxury segment, given the strong demand.
Valuation and view
* We expect SRIN to deliver a healthy 24% presales CAGR over FY25-27E, fueled by a ramp-up in launches from both new and existing projects. Further, its sound balance sheet and strong cash flows would enable 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 FY26E EBITDA.
* We reiterate our BUY rating on the stock with a TP of INR540, implying a 27% upside potential.
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