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Sunteck Realty (SRL), with its proven ability to market ultra-luxury projects in Mumbai Metropolitan
Region (MMR), aggressive and multi-pronged land acquisition capabilities, focus on RoE, and high
disclosure standards, is an interesting play on the Mumbai real estate market. While a limited execution
track record and slowdown in MMR premium residential market are risks, we draw comfort from SRL’s
capabilities to build an attractive portfolio (32.2msf; SRL’s share – 13.8msf; ~8msf to be launched over
FY12-13; 67% of portfolio in MMR) in five years of existence at low costs (average cost Rs635psf; Rs916psffor MMR). Adoption of JV/ JDA structures has enabled it to acquire scale without straining the balance
sheet (FY11E net gearing of 0.4x) and minimizing outflow on land acquisitions (SRL’s share of land
acquisition cost – ~Rs14bn). With ~Rs24bn in operating cash surplus over FY11-13E potentially providing
sufficient capital for incremental growth, SRL is poised to shift to a new trajectory and create significant
shareholder value. Initiating coverage with Outperformer and a 15-month price target of Rs776/ share.
Premium player and a competent land acquirer: With a series of smart land acquisitions and many ultrapremium
residential launches, SRL has made a mark in the MMR within five years of inception. Partnerships
with Ajay Piramal Group and Kotak Realty Fund have enhanced corporate governance, given access to capital
and aided brand building. Astute use of the JV/ JDA model and quick land turnarounds have helped SRL
build a 32.2msf MMR-focused portfolio at very low costs, thereby generating high project IRRs.
Strong launch pipeline and cashflows in FY11-13E: With clean land and approvals at advanced stages, SRL
is set to launch 11 projects (6.4msf) over the next 12-15 months. Over FY11-13, we expect SRL to generate
operating cash surplus of ~Rs24bn (Rs16bn of sales to date). However, revenue recognition (due to Project
Completion Method) will lag for next 3-4 quarters before gaining significant pace.
Outperformer with an NAV-based price target of Rs776: While limited execution history and potential
conflicts in the JV with Piramal are key risks, we expect SRL’s management to create significant value as it
utilizes ~Rs24bn of cash surplus to materially step up land acquisitions and project launches. This could, in
turn, provide steady upsides to our FY12E NAV of Rs776 per share (55% upside from CMP).
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Sunteck Realty (SRL), with its proven ability to market ultra-luxury projects in Mumbai Metropolitan
Region (MMR), aggressive and multi-pronged land acquisition capabilities, focus on RoE, and high
disclosure standards, is an interesting play on the Mumbai real estate market. While a limited execution
track record and slowdown in MMR premium residential market are risks, we draw comfort from SRL’s
capabilities to build an attractive portfolio (32.2msf; SRL’s share – 13.8msf; ~8msf to be launched over
FY12-13; 67% of portfolio in MMR) in five years of existence at low costs (average cost Rs635psf; Rs916psffor MMR). Adoption of JV/ JDA structures has enabled it to acquire scale without straining the balance
sheet (FY11E net gearing of 0.4x) and minimizing outflow on land acquisitions (SRL’s share of land
acquisition cost – ~Rs14bn). With ~Rs24bn in operating cash surplus over FY11-13E potentially providing
sufficient capital for incremental growth, SRL is poised to shift to a new trajectory and create significant
shareholder value. Initiating coverage with Outperformer and a 15-month price target of Rs776/ share.
Premium player and a competent land acquirer: With a series of smart land acquisitions and many ultrapremium
residential launches, SRL has made a mark in the MMR within five years of inception. Partnerships
with Ajay Piramal Group and Kotak Realty Fund have enhanced corporate governance, given access to capital
and aided brand building. Astute use of the JV/ JDA model and quick land turnarounds have helped SRL
build a 32.2msf MMR-focused portfolio at very low costs, thereby generating high project IRRs.
Strong launch pipeline and cashflows in FY11-13E: With clean land and approvals at advanced stages, SRL
is set to launch 11 projects (6.4msf) over the next 12-15 months. Over FY11-13, we expect SRL to generate
operating cash surplus of ~Rs24bn (Rs16bn of sales to date). However, revenue recognition (due to Project
Completion Method) will lag for next 3-4 quarters before gaining significant pace.
Outperformer with an NAV-based price target of Rs776: While limited execution history and potential
conflicts in the JV with Piramal are key risks, we expect SRL’s management to create significant value as it
utilizes ~Rs24bn of cash surplus to materially step up land acquisitions and project launches. This could, in
turn, provide steady upsides to our FY12E NAV of Rs776 per share (55% upside from CMP).
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