Stock Fundamentals

Sunteck Realty: Promising plots

Bavadharini KS | Updated on October 03, 2018 Published on September 29, 2018

Strong pipeline of projects coming up in favourable locations should boost revenues

The stock of Sunteck Realty, a Mumbai-based property developer, has not corrected as steeply as other realty stocks such as Sobha, Oberoi Reality and Godrej Properties.

The share price corrected by around 23 per cent, while other firms’ stocks declined by 30-40 per cent over the past few months. Factors such as favourable locations, ability to command better prices in the ultra-luxury and luxury residential segments and strong financials have helped Sunteck remain relatively resilient compared to peers.

 

 

 

With headwinds in real estate — the enactment of the Real Estate Regulatory Authority (RERA) and Goods and Service Tax (GS) Acts — tapering down, project launches are picking up for players across the segment. In this regard, Sunteck is well-placed to gain from improving market conditions, with launches and multiple projects nearing completion.

The company has a strong pipeline of projects coming up over the next two years in Mumbai, which would boost revenues and profits.

Sunteck has land banks in key areas and its focus on city-centric development bodes well for the company’s realisations. Investors with a two to three years perspective can buy the stock. At ₹402, it trades at a reasonable 18 times its likely per share earnings for FY19, cheaper than peers that trade at over 20 times.

 

 

 

The company has carved a niche for itself in the ultra-luxury and luxury segments, and strong brand recognition allows for premium pricing. Its financials are healthy with low debt-equity levels and superior operating margins compared with peers.

Favourable markets

Sunteck Realty derives nearly 72 per cent of its revenues from the residential segment, while the commercial and retail segments account for the rest. Over the past decade, it has acquired land parcels in the heart of Mumbai — BKC, ODC and Andheri — which has given it an early mover advantage. It also helped the company command premium pricing for its properties.

For instance, the Centre plans to make BKC an international financial service centre and, accordingly, infrastructure developments such as metro stations, five-star hotels and commercial properties are under way. Many corporates and institutions are already operating from BKC.

During the June quarter, the company sold two units in BKC (ultra-luxury housing segment) for ₹45 crore and ₹21 crore respectively.

Similarly, it acquired 23 acres of land in ODC Goregaon, which is part of the Commercial Business District (CBD) of the MMRDA (Mumbai Metropolitan Region Development Authority) and is expected to be a key beneficiary of infrastructure development. The company has begun constructing residential units — Sunteck City Avenue 1 and 2. In the recent June quarter, it sold 46 units for ₹92 crore.

The company is also focussed on other micro-markets such as Borivali, Andheri, Airoli, Ville Parle and Sion and has multiple projects in these locations. Sunteck Realty has expanded to cities such as Goa and Nagpur too.

Strong cash flows

The company has about 30 million square feet spread across 25 projects (completed, on-going and upcoming projects), largely in BKC and ODC areas.

Going ahead, a lion’s share of company’s revenues is expected to come from BKC and ODC projects. Further, the company targets a customer base which includes corporate employees, business heads of financial institutions and HNIs.

Nearly 36 per cent of the total pre-sales bookings have come from the ultra-luxury and luxury segments in the June quarter. The average price realisation is about ₹53,000 per sq ft from projects in BKC.

Given the strata of customers the company serves, it is likely to maintain a steady revenue stream over the next few years.

On the ODC residential front, the company expects to launch Sunteck City Avenue 3 by the end of financial year 2019 and expects to sell 150-300 units.

The ticket size of ODC projects — Sunteck City —– starts from ₹1-1.5 crore and goes up to ₹3 crore. With infrastructure improving, Sunteck City Avenue projects are likely to realise the same or even higher rates over the next three to four years.

On the commercial side, the company plans to launch Sunteck City Avenue 5 and 6 (commercial properties) in the next few months.

The management expects to clock annual rental income of about ₹450-475 crore from these projects, with a likely occupancy rate of 90 per cent. This, along with Gateway 51 (another commercial property to be launched in the second quarter FY19), would significantly improve rental incomes in the coming years.

The company has also forayed into the affordable housing segment and plans to launch a project in Naigaon, MMR. The estimated price for the project is ₹5,000 per sq ft and expected future sales value is around ₹3,700 crore. Besides the Naigaon project, the company is developing projects jointly with various other developers. This partnership would enable the company reduce its capital commitment.

Healthy financials

For FY-18, the company’s revenues declined 7 per cent Y-o-Y due to real-estate market conditions, but profits grew 4 per cent.

In the recent June quarter, the revenue and profit (to equity shareholders) grew 58 per cent and 67 per cent Y-o-Y respectively. Sunteck Realty’s debt-equity ratio is fairly health at 0.17 times.

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