PL Stock Report: Sunteck Realty (SRIN IN) - Q2FY24 Result Update – Steady quarter; new launches and project additions to step up - BUY

Sunteck Realty (SRIN IN) - Param Desai - Research Analyst, Prabhudas Lilladher Pvt Ltd.

Rating: BUY | CMP: Rs436 | TP: Rs565

Q2FY24 Result Update – Steady quarter; new launches and project additions to step up

Quick Pointers:

♦ Kalyan and Nepean sea project to launch in Q3FY24 and H2FY25 respectively.

♦ Reiterated pre-sales guidance at Rs20bn for FY24E.

Sunteck Reality (SRIN) reported healthy pre-sales of Rs. 4bn; increased 17% YoY and 2% QoQ driven by high mid-income projects. However, collections declined by 26% QoQ as large part of sales were executed towards end of the quarter. SRIN’s proven ability to market ultra-luxury projects, aggressive and multi-pronged land acquisition capabilities in various micro markets across Mumbai Metropolitan Region (MMR) is an interesting play on Mumbai’s high value real estate market. We expect company’s pre-sales to grow 2x over next 3 years aided by ongoing projects and strong new launches pipeline. Further given likely strong cash flow generation (Rs8-10bn over FY23-26E), we see SRIN to step up new project additions which will be a key catalyst for stock performance. Adoption of asset light model has enabled the company to acquire scale without straining its balance sheet and this will likely continue in new project additions too. Maintain ‘Buy’ rating with a TP of Rs. 565/share.

♦ No meaningful project completion resulting in EBIDTA loss: Operationally, SRIN reported EBIDTA loss of Rs 141mn vs Rs 57mn in Q2FY23 and Rs. 75mn in Q1FY24. Consolidated revenues grew by 9% YoY to Rs. 249mn. PAT came in at negative Rs. 139mn vs loss of Rs. 100mn YoY and Rs. 67mn QoQ. Net debt stood at Rs. 2.6bn; decreased by Rs. 50mn QoQ.

♦ Healthy pre-sales; driven by high mid-income projects: SRIN reported pre-sales of Rs 4bn (up 17% YoY and 2% QoQ) led by high mid-income projects (Sunteck City, SBR, Sky Park projects); which contributed ~48% (Rs. 1.9bn) to total pre-sales vs 78% (Rs. 3bn) in Q1FY24. During the quarter, average realization was at Rs. 10,330 psf. Collections decreased by 35% YoY (26% QoQ) to Rs. 2.1bn in Q2FY24 due to large part of sales executed at the end of the quarter and expected to be reflected in Q3’s collections. During the quarter, Sky park at Mira road project contributed Rs. 980mn to the total pre-sales.

♦ Key con-call takeaways: (1) Upcoming Kalyan and Nepean sea road project launches: Kalyan project has total 4 towers with revenue potential of Rs. 12-14bn. SRIN has received all the approvals for two towers with a revenue potential of Rs. 6bn and expected to launch in Nov 2023. Nepean sea road project guided to launch by H2FY25E. (2) Max World and Sunteck city 4th Avenue: Management guided revenues of ~Rs. 7.5-8.5bn and ~Rs. 9.5-10.5bn will be recognized from Maxx world at Naigaon and City 4th Avenue at ODC, Goregaon west by end of FY24E and FY25E; respectively. (3) Joint Investment Platform: Management plans to additionally add Rs.80-100bn GDV accretion over 2-3 years in its joint investment platform with IFC. The platform planned to spent for joint investment of Rs. 7.5bn where the platform will be MMR focused and target segment will be mid-income group with a ticket size of Rs. 15mn. (4) BD activities, land owner funding and JDA cost was at Rs. 640mn for H1FY24; of which Rs.100-150mn pertains to new projects (5) SRIN reiterated its pre-sales guidance at Rs. 20bn for FY24E.

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