Keystone Realtors: Climbing the Redevelopment bandwagon

9 Mar 2023 , 10:39 AM

Key takeaways from this interaction include: 

• Company is targeting a healthy double-digit pre-sales CAGR over the next few years, aided by cumulatively ~Rs400 billion of receivables, ongoing and forthcoming projects. 
• Business development 1.5-2x of annual bookings by investing 10-12% of GDV, with an outsized focus on redevelopment. 
• Net debt-to-equity post IPO healthy at 0.06x, but likely to go up to 1:1x; margins muted currently, but targeting 27-28% and 17-19% respectively at EBITDA and PAT level, over steady state basis.

Strong pre-sales outlook; focus on Mid and Aspirational segments

Over FY19-22, pre-sales have increased at 29% CAGR. 9MFY23 Pre-sales came in at Rs11.3 billion (up 17% YoY on adjusted basis). ~66% sales came in from the Mid/Mass (Rs10-30 million) and Aspirational (Rs 30-70 million) segments, where Rustomjee sees maximum demand and also targets launches in future. Rustomjee expects it’s pre-sales CAGR to continue in mid-teens over next few years, driven by healthy pipeline of ongoing and forthcoming projects of ~5msf and 27msf respectively.

Business development could accelerate, driven by redevelopment projects

Rustomjee has added five projects YTDFY23 with an estimated GDV of Rs34.3 billion (of which 66% GDV is from redevelopment). Management is targeting adding 1.5-2x of annual bookings with 10-12% of GDV as initial investments. Further, 85% of new acquisitions in FY23 (in terms of GDV) are from Mid/Mass and Aspirational categories. The criteria for taking on projects include a sea or garden view location; additionally, an access or a potential access to good infrastructure.

Debt likely to rise on new launches/additions; margins should improve gradually

Net debt has reduced from Rs4.7 billion (excluding JV debt) as on FY22 to 0.98 billion in Q3FY23, largely driven by IPO proceeds of Rs5.6 billion. However, net debt-to-equity could go up to 1:1, driven by new launches and project additions. Rustomjee’s gross sales-to-collections ratio has averaged 93%, and has reported 38% OCF margins (9MFY23). Reported P&L EBITDA margins have been weak — and while the near term outlook also remains muted — it is targeting 27-28% EBITDA and 17-18% PAT margins over the next three years.