Sunteck Realty: Growing on prudent capital allocation

28 Sep 2023 , 10:56 AM

Analysts of IIFL Capital Services recently interacted with the management of Sunteck Realty (SRIN) — a prominent Residential developer focused on MMR, with presence across the Mid-income to Super Luxury offerings. Having delivered 22% Cagr in pre-sales over the last five years, SRIN expects to continue 20-30% p.a. growth over FY24-26, driven by new launches. Further, it expects to add at least three new projects over FY24, largely through the asset-light JDA route. JV with IFC for the affordable and mid-income housing could drive a sharp scale-up. Revenue recognition is likely to pick up over FY24-25; mgmt expects sharp improvement in Ebitda margins to 30-35%. 

Pre-sales growth to be driven by new launches: 

Over FY21-23, SRIN has delivered 25% pre-sales Cagr, largely driven by new launches across Mira Road, Vasai, etc. Sustenance sales across its flagship BKC has been steady. For FY24-26, mgmt has guided to 20-30% growth YoY, driven by launches in Kalyan, Nepean Sea Road with a cumulative GDV of Rs115bn. Further, its recent foray (JV with IFC of Rs7.5bn) into Mid-income housing to build 12,000 units across four to six projects, has the potential to drive a paradigm shift in its operational momentum. 

Asset-light approach to business development: 

SRIN has acquired 38.5msf of projects since FY18, with a GDV of ~Rs300bn and initial upfront payment of only Rs4.4bn (including Rs2.1bn debt) — allowing it to generate healthy IRRs. Further, it is negotiating four to five deals, of which it expects closing at least three, mostly through the JDA route. Over last three years, SRIN has cumulatively generated gross operating cashflows of Rs9.3bn (used to pay for land/premiums payment etc), and expects the trajectory to improve further, allowing enough room for acquisitions. 

Prudent cashflow management: 

SRIN has ongoing unsold inventory worth Rs32bn, and forthcoming GDV of Rs290bn spread across seven projects in MMR, offering strong growth visibility over the next 7-10 years. Further, it has land bank (Vasind, Pen-Khopoli, Dubai and Jaipur) that can be developed in future/or is subject to approvals. SRIN has kept its net debt-to-equity low at <0.2x over the last few years; has refrained from high upfront land capex. SRIN expects the completion of at least two projects over FY24-25, which will drive strong revenue recognition.