Outlook is bright even as near-term upsides are limited due to stock surge
Sunteck Realty (SRL) clocked Q1FY19 revenue of Rs 2.1 bn (up 58% y-o-y, 2% q-o-q) and PAT of Rs 682 mn (up 95% y-o-y, 16% q-o-q). New sales for the quarter jumped 42% y-o-y to Rs 1.8 bn (89ksf, up 108% y-o-y) with ODC (Avenue 1 & 2) and BKC projects (Signature Island) being major contributors. SRL is targeting launch of phase I (1.7msf) of the Naigaon project (total 10msf saleable area) in September, 2018 and eyeing ~Rs 2.5-3.0 bn new sales from it. We believe, the launch will boost the company’s prospects and propel long-term growth even as the recent run-up in the stock price may have capped near-term upsides. Maintain Buy with target price of Rs 466.
Operations remain healthy: New sales jumped 42% y-o-y to Rs 1.8 bn (89ksf) aided by the ODC project (~Rs 0.9 bn), Signature Island (~Rs 0.5 bn) and Signia Pearl (Rs 0.2 bn). The company also launched the Gilberd Hill project during the quarter and posted sales of Rs 110 mn (six units) on it. Collections in Q1FY19 surged 23% y-o-y and 4% q-o-q to Rs 1.6 bn. Q1FY19 revenue of Rs 2.1 bn came lower than our Rs 2.4 bn estimate. However, Ebitda margin of 53% (flat y-o-y, up 90bps q-o-q) surpassed our 43% margin estimate. Consequently, Rs 682 mn net profit was higher than our Rs 530 mn estimate.
Outlook and valuations: Poised for growth— We envisage a leg-up to SRL’s growth from: (i) launch of phase I of Naigaon project and future phases in the ODC project; and (ii) sales pick-up in BKC & ODC projects. Entry in the affordable housing market, a robust balance sheet post QIP (debt at D/E at 0.17x) and RERA-driven consolidation in favour of organised players render us bullish on the stock over the long run, even as near-term gains may be muted due to recent spurt in the stock price. We maintain ‘BUY/SP’ with target price of Rs 466.