Sunteck Realty Ltd Research Report By IndiaNivesh

We recently met the management of Sunteck Realty Ltd (SRL) to understand its business and the way forward for the Company. SRL is a Mumbai focused developer having quality land banks with clean and clear titles, and premium positioning of its projects in every micro market that it caters. SRL has a project portfolio of ~23 msf spread across 25 projects, with ~7 msf BUA under execution by end FY17. With marquee portfolio positioned at the top end of each micro market, SRL has a strong visibility of future cash flows. With low debt and robust execution, SRL can achieve substantial value creation in the medium term. We remain positive on SRL’s future prospects and initiate coverage on SRL with a ‘Buy’ rating and a FY18E TP of Rs 358.

– Strong visibility of future cash flows SRL has strong visibility on future cash flows from its ongoing and already completed projects. From SRL’s 6 completed projects with BUA of ~2.5 msf and 8 ongoing projects with BUA of ~3.4 msf, the company is expected to generate Rs 11bn of cash flows. Cumulatively from all the above projects SRL is expected to generate free cash flows of Rs 21bn and Rs 23bn respectively for FY17 and FY18.

– Consolidated revenue to grow at a CAGR of 26.1% over FY16-18E At the end of Q4FY16, SRL’s unrecognised pre-sales stood at ~Rs 17bn which is 2.2x its FY16 sales giving strong revenue visibility for FY17-18E. We expect SRL to recognise its Signia Pearl revenues in FY17, while Sunteck City – 1st Avenue and Signia High should come for revenue recognition in FY18. In our model we have forecasted revenue CAGR of 26.1% for SRL’s consolidated revenue over FY16-18E period.

– PAT CAGR of 34.4% over FY16-18E with 420bps expansion in margin We believe, going forward, new sales momentum coupled with execution of its ongoing projects would help the company to ramp up its earnings over the next few years. We expect SRL to report 34.4% CAGR in its earnings over FY16-18E with nearly 420bps expansion in its EBITDA margin.

Valuation

We have valued SRL using DCF method, wherein we have calculated value of its real estate business comprising ongoing and forthcoming projects, planned projects, pending value from completed development projects and completed annuity projects. Our DCF method yields a NAV of Rs 398/share for SRL. Applying a 10% discount to our NAV, we arrive at a target price of Rs 358/share for SRL. At the CMP of Rs 228, SRL is currently available at a steep discount of 42.7% to its NAV of Rs 398, which is quite attractive given the company’s future growth potential. We initiate coverage on SRL with a BUY rating and a target price of Rs 358, which gives an upside potential of 57%.