Sunteck Realty (SRL) reported strong pre-sales of R3.4 billion in H1FY17, up 48% y-o-y, driven by its Goregaon project (contributed 60% to pre-sales). Collections too improved significantly to R2.86 billion during H1, up 73% y-o-y.
Resurgence in operations has been driven by SRL’s strategy to ramp up sales and EPC team (hired 40 mid/senior level professionals in Q4) and advertising and marketing (print media and hoardings). However, management highlighted the sentiment has turned weak post demonetisation and the traction has slowed down significantly. Given SRL’s exposure to Mumbai market (high property prices) and super-luxury projects in its portfolio, we lower our pre-sales run-rate and increase execution timelines to factor in the slowdown.
Avenue 2 project saw strong traction (sales of R2.1 billion in H1FY17 YTD vs. R0.3 billion in H1FY16), driven by affordable ticket sizes (<R15 million) and infrastructure improvement (opening of new Oshiwara flyover and completion of Oshiwara railway station). BKC projects too drew a good response with sales of R1.37 billion in H1FY17.
Operating margin stood higher at 61% in Q2FY17 (vs 33% in Q2FY16), mainly on account of higher realisation sales in its BKC projects. SRL can generate net cash flows of R40-45 billion from its BKC and Goregaon Phase 1 projects over the next 3-4 years.