A strong set; timing of launches a key monitorable
Revenue for Suraj Estate Developers (SURAJEST) grew 5% YoY to INR109cr in Q2FY25 on steady execution. EBITDA was flat YoY at INR63cr, with margin contracting by 287bp YoY to 58.2% on higher construction and employee cost. PAT surged by 88% YoY to INR32cr on lower (52%) interest cost led by de-leveraging and re-financing of high-cost debt. The management expects rates to stay in the 13–13.5% range and has guided at an interest cost of INR65–70cr for FY25 (FY24: INR139cr). Presales grew 26% YoY to INR107cr on 14% volume growth despite a higher number of inauspicious days. Realisation improved by 10% YoY to INR48,366/sq. ft. on a steady pricing growth in existing projects and a better product mix. Collections grew 90% YoY to INR127cr on steady progress in construction and collection from commercial project CCIL.
In FY25, it aims to launch seven projects with a GDV of INR1,150cr (residential/commercial: INR675cr/INR450cr), which will help it achieve its guided pre-sales of INR850cr (residential/ commercial: INR650cr/INR200cr). We expect ongoing and upcoming projects to generate a gross/net cash flow of INR7,117cr/INR3,771cr over FY25–32. We discount cash flows to FY26 to arrive at a NAV of INR2,506cr. We upgrade our TP to INR992 from INR935 to account for a stronger Balance Sheet after the recent fund raise. Maintain ‘BUY’.
Healthy YoY performance on premiumisation, steady execution, and lower interest cost
Led by steady execution, revenue grew 5% YoY to INR109cr (it follows the percentage completion method of accounting). EBITDA margin fell 287bp YoY to 58.2% on higher construction spends (19%) and employee costs (82%). EBITDA was flat YoY at INR63cr. PAT grew 88% YoY to INR32cr on lower interest costs. Sequentially, revenue declined 18% on a high base. EBITDA was flat while PAT grew 6% QoQ. Bookings grew 26% YoY to INR107cr. Volume grew 14% YoY to 22,201sq. ft. despite the second quarter of the fiscal being seasonally weak. Average realisation improved by 10% YoY on steady like for-like pricing growth. Sequentially, pre-sales fell 24% on a 19% decline in volume from a high base.
Project pipeline stable, launches worth INR1,150cr to drive pre-sales in FY25
As of September-end, it had an inventory of ~71,000sq. ft. (GDV: ~INR395cr) in ongoing projects with plans to launch ~9lk sq. ft. (GDV: ~INR5,000cr) till FY27. Of this, launches of ~INR1,150cr (residential/commercial: INR675cr/INR475cr) are planned in FY25. Driven by launches, it expects presales of INR850cr (residential/commercial: INR650cr/ INR200cr) in FY25.
Recent fund raise to help accelerate project additions
In October, it raised INR269cr via a preferential allotment (INR244cr) and issue of convertible warrants (INR25cr). In the case of warrants, it has called for 25% of the amount due, with the balance (INR75cr) due within 18 months. A significant portion of the amount raised will be used for project acquisitions, which will enhance the launch pipeline. The management intends to deploy these proceeds before March 2025.
Expect pre-sales/revenue/EBITDA/PAT CAGR of 51%/53%/50%/102% over FY24–27
Over FY24–27, we estimate 51% CAGR in pre-sales at INR1,663cr. We expect inventory and the current project pipeline to generate a gross/net cash flow of INR7,117cr/INR3,771cr over FY25–32. Any new project additions will lead to an expansion in expected cash flows. We see revenue growing in line with pre-sales growth. EBITDA margin is expected to settle at 52–53%, with 50.4% EBITDA CAGR over FY24–27 (INR791cr). We expect 101.9% PAT CAGR over FY24–27 to INR555cr on falling interest cost.
Maintain ‘BUY’ with a revised TP of INR992
Owing to: i) a robust project lineup and a healthy launch pipeline, ii) leadership position in the redevelopment segment in South Central Mumbai, iii) strong cost advantage and a proven track record in redeveloping 33(7) projects, iv) a huge addressable market, and v) a healthy Balance Sheet with predictable cash flows, we are optimistic on SURAJEST’s growth story. We maintain ‘BUY’ with a revised TP of INR992, valuing the stock at 1.5x FY26E NAV.
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