Keystone Realtors: Aligned for growth

30 Jun 2023 , 12:11 PM

Recommendation: Not Rated

Keystone Realtors (Rustomjee) reported an overall decent performance for FY23 across pre-sales, business development and launches. Management expects FY24 to show meaningful improvement across all these parameters, targeting a 25% presales growth YoY and business development of 1.5-2x of presales with outsized focus on redevelopment projects. With net debt-to-equity at 0.01x, balance sheet is healthy, allowing Rustomjee to go aggressive on adding and launching projects. P&L EBITDA margins improvement will be gradual but steady.

Decent FY23 performance

FY23 pre-sales came in at Rs. 16 billion (down 19% YoY on adjusted basis). ~63% sales came in from the Mid/Mass (Rs. 10-30 million) and Aspirational (Rs. 30-70 million) segments versus 57% in FY22. Net debt has reduced from Rs. 4.7 billion (excluding JV debt) as on FY22 to Rs. 0.2 billion in FY23, largely driven by fresh issue proceeds of Rs. 5.6 billion. P&L recognition was weak in FY23 (-46% YoY), impacting EBITDA margins. Near-term P&L margin outlook remains muted due to impact of legacy projects, to fully normalize FY26 onwards.

Business development to accelerate in FY24

Rustomjee has added 5 projects in FY23, with an estimated GDV of Rs. 34.3 billion (of which 66% GDV is from redevelopment). Management is targeting BD addition of 1.5-2x of annual bookings, implying Rs. 35-40 billion GDV addition in FY24. Further, the company’s focus on Mid/Mass and Aspirational categories (Rs. 20-70 million/unit) is likely to continue. Redevelopment projects involve lower upfront capital versus outright projects, making IRRs more attractive. Rustomjee management remains unfazed by increasing competition in the redevelopment space over last 1-2 years.

Strong growth outlook

Management is guiding to pre-sales growth of 25% in FY24, driven by strong launch pipeline of Rs. 400 billion GDV (+377% YoY) in FY24. Rustomjee has already launched 2 projects in Bandra East and Thane with a total GDV of Rs. 9 billion. Jariwala, Dombivali, Thane and Chembur are among the key project launches planned for FY24. Rustomjee’s gross sales-to-collections ratio has averaged 102% over past 6 quarters, and has reported 42% OCF margins in FY23. Collection efficiency is expected to remain healthy at 80-85% of pre-sales. However, net debt-to-equity is expected to go up, driven by new launches and project additions.