KEY DATA Kalyan project addition boosts prospects

India Equity Research Real Estate September 16, 2021

SUNTECK REALTY

COMPANY UPDATE

KEY DATA

Rating

Sector relative Price (INR) 12 month price target (INR) Market cap (INR bn/USD bn) Free float/Foreign ownership (%)

What's Changed

Target Price

Rating/Risk Rating

BUY

Neutral 426 553

62/0.8 6.1/2.9

INVESTMENT METRICS

480

375

270

165

60

-45

Sales Growth EPS Growth

(%)

(%)

Real Estate

RoE

PE

(%)

(x)

SRIN IN Equity

FINANCIALS

Year to March Revenue EBITDA Adjusted profit Diluted EPS (INR) EPS growth (%) RoAE (%) P/E (x) EV/EBITDA (x) Dividend yield (%)

FY20A

5,597 1,682

740 5.1 (67.5) 2.7 84.0 38.1 0.2

FY21E

6,139 1,369

419 2.9 (43.3) 1.5 148.3 47.1 0.2

(INR mn)

FY22E FY23E

7,736 3,707 1,919

13.1 357.6

6.7 32.4 17.6 0.4

6,727 3,910 1,659

11.4 (13.5)

5.5 37.5 16.4 0.4

PRICE PERFORMANCE

450 405 360 315 270 225

Sep-20

Dec-20 Mar-21 SRIN IN Equity

59,000 54,400 49,800 45,200 40,600 36,000 Jun-21 Sep-21

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Kalyan project addition boosts prospects

Sunteck Realty (SRL) has acquired a project in Shahad (Kalyan) in Thane, MMR, with a saleable area of ~10msf. The project has been acquired under the JDA mode. Assuming that the company's effective share is 75%-plus (in line with similar deals it has entered into over the past few years), we believe the acquisition would be value-accretive with NAV addition of ~INR104/share.

The company's robust balance sheet allows further NAV growth through project acquisition. We add this project, but defer timelines for proposed commercial projects considering weak demand in office space. Maintain `BUY' with a revised TP of INR553/share (INR492 earlier).

Project addition boosts project portfolio

SRL has acquired a ~50-acre land parcel at Shahad (Kalyan) in Thane, MMR, where it intends to develop a premium integrated residential project. Acquired under the JDA mode, the project has about 10msf of development potential.

Revenue potential of ~INR80bn

We assume that the company will have an effective 75%-plus revenue share in the project in line with its other such deals over the past few years (Naigaon, Vasai, Vasind and Borivali). SRL will construct and market the project. In our view, the project can generate revenue of ~INR80bn, assuming ASP of ~INR7,000/sft. Factoring in construction cost of INR2,500/sft and 5% YoY inflation, we estimate project NAV would be INR14.5bn (INR104/share).

Focus remains on asset-light model

Since the advent of covid-19, SRL has added projects in Vasai, Vasind (Thane), Borivali (West) and now Kalyan totalling ~18msf, leveraging the asset light model. This makes the company among the largest acquirers of value-accretive projects in the MMR during this period. This recent acquisition coupled with its strong balance sheet is likely to enable the company to maintain its robust growth trajectory.

Outlook and valuation: NAV growth story; maintain `BUY'

SRL's low gearing provides room to leverage its balance sheet and capitalise on attractive land purchase opportunities to grow its NAV. We remain positive on the company's long-term prospects, courtesy industry consolidation in the wake of RERA (refer to comprehensive sector research Real Estate ? Leadership matters), a diversified product portfolio, a lean balance sheet and revival in housing demand. Expansion in project portfolio (refer to All eyes on new launches) and pick-up in launch activity are the key stock triggers, in our view. We add this project to our NAV, but also defer completion timelines for the proposed commercial projects in Goregaon considering weakness in office demand. Consequently, our TP goes up to INR553/share (on a par with NAV of INR553). We maintain `BUY/SN' while continuing to follow the old accounting standards.

Parvez Qazi +91 (22) 4063 5405 Parvez.Qazi@

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Edelweiss Securities Limited

SUNTECK REALTY

Financial Statements

Income Statement (INR mn)

Year to March

FY20A

Total operating income

5,597

Gross profit

3,098

Employee costs

418

Other expenses

999

EBITDA

1,682

Depreciation

37

Less: Interest expense

813

Add: Other income

205

Profit before tax

1,029

Prov for tax

281

Less: Other adj

0

Reported profit

740

Less: Excp.item (net)

0

Adjusted profit

740

Diluted shares o/s

146

Adjusted diluted EPS

5.1

DPS (INR)

1.0

Tax rate (%)

27.3

Important Ratios (%)

Year to March Selling price infl. (%) Const. cost infl. (%) Gross margin (%) EBITDA margin (%) Net profit margin (%) Revenue growth (% YoY) EBITDA growth (% YoY) Adj. profit growth (%)

FY20A 6.0 3.0

55.4 30.0 13.2 (34.7) (55.5) (67.5)

FY21E 6,139 2,473

367 737 1,369

52 846 170 584 164

0 419

0 419 146 2.9 1.0 28.1

FY21E 6.0 3.0

40.3 22.3

6.8 9.7 (18.6) (43.3)

Assumptions (%)

Year to March GDP (YoY %) Repo rate (%) USD/INR (average) Interest cost (%) Employee cost (%) Other exp. (%) Other inc. (%) Dep. (% gr. block) Effect. tax rate (%)

FY20A 4.0 4.4

70.9 14.5

7.5 17.8

3.7 5.8 27.3

FY21E (8.0) 4.0 74.2 13.8 6.0 12.0 2.8 7.8 28.1

Valuation Metrics

Year to March

FY20A

FY21E

Diluted P/E (x)

84.0

148.3

Price/BV (x)

2.3

2.2

EV/EBITDA (x)

38.1

47.1

Dividend yield (%)

0.2

0.2

Source: Company and Edelweiss estimates

FY22E 7,736 4,921

404 810 3,707

52 577 178 3,255 1,107

0 1,919

0 1,919

146 13.1

1.5 34.0

FY22E 6.0 3.0

63.6 47.9 24.8 26.0 170.7 357.6

FY22E 0

4.0 73.0

7.5 5.2 10.5 2.3 7.6 34.0

FY22E 32.4 2.1 17.6 0.4

FY23E 6,727 5,246

444 891 3,910

54 583 187 3,461 1,177

0 1,659

0 1,659

146 11.4

1.5 34.0

Balance Sheet (INR mn)

Year to March

FY20A

Share capital

140

Reserves

27,347

Shareholders funds

27,487

Minority interest

0

Borrowings

6,512

Trade payables

7,698

Other liabs & prov

(360)

Total liabilities

41,338

Net block

552

Intangible assets

0

Capital WIP

0

Total fixed assets

552

Non current inv

2,714

Cash/cash equivalent

1,662

Sundry debtors

3,731

Loans & advances

1,289

Other assets

31,254

Total assets

41,338

FY23E 6.0 3.0

78.0 58.1 24.7 (13.0)

5.5 (13.5)

Free Cash Flow (INR mn)

Year to March

FY20A

Reported profit

740

Add: Depreciation

37

Interest (net of tax)

593

Others

(15)

Less: Changes in WC

(1,843)

Operating cash flow

(1,081)

Less: Capex

(168)

Free cash flow

(913)

FY23E 7.0 4.3

72.0 8.7 6.6

13.2 2.8 7.6

34.0

Key Ratios

Year to March RoE (%) RoCE (%) Inventory days Receivable days Payable days Working cap (% sales) Gross debt/equity (x) Net debt/equity (x) Interest coverage (x)

FY20A 2.7 5.6

3,922 255

1,078 510.0

0.2 0.2 2.0

FY23E 37.5 2.0 16.4 0.4

Valuation Drivers

Year to March EPS growth (%) RoE (%) EBITDA growth (%) Payout ratio (%)

FY20A (67.5)

2.7 (55.5)

19.7

FY21E 140

27,582 27,723

0 6,544 6,268 (293) 40,241

529 0

96 625 2,266 1,306 3,352 1,161 31,245 40,241

FY22E 140

29,237 29,377

0 7,544 9,721 (289) 46,353

310 0

96 405 2,266 1,505 3,702 1,561 36,569 46,353

FY21E 419 52 607 0

(998) (527) (125) (401)

FY22E 1,919

52 381 188 (2,676) (517) (20) (497)

FY21E 1.5 4.4

2,668 211 695

479.8 0.2 0.2 1.6

FY22E 6.7

10.8 3,732

166 1,037 414.6

0.3 0.2 6.3

FY21E (43.3)

1.5 (18.6)

34.7

FY22E 357.6

6.7 170.7 11.4

FY23E 140

30,632 30,773

0 7,544 18,627 (285) 56,658

319 0

974 1,293 2,266 2,529 4,052 1,961 44,212 56,658

FY23E 1,659

54 385 (43) 517 2,187 (899) 3,086

FY23E 5.5

10.7 8,675

210 3,492 469.1

0.2 0.2 6.6

FY23E (13.5)

5.5 5.5 13.2

2

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Edelweiss Securities Limited

SUNTECK REALTY

Company Description

SRL is a Mumbai focused real estate developer engaged in construction and development of residential and commercial properties. Majority of its land bank is located in Mumbai with the balance across Nagpur, Goa and Jaipur. Its land bank has been acquired through outright purchase as well as JDA/JV with landowners. Its residential development caters to buyers across segments.

Investment Theme

Focused and monetisable land bank in lucrative Mumbai market. Ability to source value accretive land buying opportunities. Expected operational scale-up leading to healthy surplus cash.

Key Risks

Prolonged slowdown in Mumbai residential market. Regulatory risks. Partnership risks in JDA/JV projects. Macro risks.

Edelweiss Research is also available on , Bloomberg - EDEL, Thomson Reuters, and Factset

Edelweiss Securities Limited

3

SUNTECK REALTY

Additional Data

Management

C & MD CFO Director Director Auditor

Kamal Khetan Manoj Agarwal Atul Poopal Rachana Hingarajia Lodha & Company

Recent Company Research

Date

Title

06-Sep-21

Vasind launch to burnish prospects; Company Update

02-Aug-21

Launches key to growing sales; Result Update

02-Aug-21

Launches key to growing sales; Result Update

Price 385 402 402

Holdings ? Top 10*

% Holding

Pabrai fund IV

4.52 FIL

BNP Paribus

2.49 ICICI Prudentia

L&T MF

2.18 ABSL MF

Pabarai Fund II

2.16 Starteck

Fidelity

1.89 Vanguard

*Latest public data

% Holding 1.18 1.07 0.49 0.21 0.16

Reco Buy Buy Buy

Recent Sector Research

Date

Name of Co./Sector

03-Sep-21 Real Estate

02-Sep-21 Real Estate

16-Aug-21 Sobha

Title

July 2021: Demand continues; Sector Update

House registrations rise in August ; Sector Update

Heathy performance amid challenges ; Result Update

(INR) (Mn)

Rating Interpretation

TP TP

525

TP

494 494

TP

452

463

445

365

285

205

125 Sep-18 Mar-19 Sep-19 Mar-20 Sep-20 Mar-21

SRIN IN Equity

Buy

Hold

Reduce

Source: Bloomberg, Edelweiss research

Daily Volume

20

16

12

8

4

0 Sep-18 Mar-19 Sep-19 Mar-20 Sep-20 Mar-21 Source: Bloomberg

Rating Distribution: Edelweiss Research Coverage

Buy

Hold

Reduce Total

Rating Distribution*

175

55

19 250

>50bn >10bn and 15% and ................
................

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