Distinct play, for choice of micro-markets and products. Initiating, with a Buy
Investment summary
Its choice of micro-markets and differentiated products make Suraj Estate stand out. On its long-standing operations (over 38 years’ delivery) in south-central Mumbai (high barriers to entry, paucity of land parcels), cost and time effective redevelopment model, keen focus on the value-luxury category (conforming to demographics) and select luxury developments, it has emerged as a real estate supplier of choice in its chosen markets. On its strong project pipeline with a much-anticipated launch of key projects like Suraj Vibe (Mahim, commercial) and Bandra luxury projects, it will further strengthen its leading position
Market share gain in its chosen south-central Mumbai region
One of the top developers with ~16% of the market in terms of supply (of units), and ~16% of the market in absorptions in the combined residential sub-markets (Mahim, Matunga, Dadar, Prabhadevi, Parel), Suraj Estate’s leading position in the combined sub-markets of south-central Mumbai is testimony to its ability to identify the right locations and offer apt products at appropriate prices
Strong pipeline, with right product positioning
At 31st Dec’24, it had 13 ongoing projects (~2m sq.ft. development potential, ~0.6m sq.ft. saleable carpet area), 19 forthcoming (entailing an estimated ~1m sq.ft. saleable carpet area) and ~2.56 acres of land reserve. Its diversified portfolio at various price points (Value luxury, Luxury) enables it to address diverse customer needs. Such a strong project pipeline (most at its present strongholds at different prices and a proven delivery track-record) provides ample near- to medium-term growth assurance. The launches of Suraj Vibe* andBandra project are key ponderable
Redevelopment projects, for an asset light growth
The company intends to lever its already established brand in redevelopments to further strengthen its project portfolio on its home turf (SCM) and in other parts of the MMR. The asset light model of redevelopment helps the Company to enjoy superior margins of ~40 to 50% as explained in page 14. Further, returns are better compared to outright land acquisition due to lower cash outflow during project commencement. This leads to superior RoE and RoCE as compared to peers.
Valuation
Well established in SCM with expertise in redevelopment of tenanted properties, the company is set benefit from the paucity of vacant land in SCM. Further, on its right-product positioning, a strong pipeline and leading EBITDA margins,premium valuations are expected for the company due to the growth potential and strong management. We initiate coverage on the stock with a Buy rating and a TP of Rs442, based on discounted cash flow methodology. At CMP of Rs314, we understand stock is mispriced taking into consideration the bear case TP of Rs372/share where launches of marquee projects are delayed.
Key risks
Delay in the Suraj Vibe and Bandra project launches and delivery; Geographical concentration in SCM; Regulatory changes; Cyclical nature of the Industry
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