Strong launch pipeline is likely to boost sales; healthy leverage’s another positive; ‘Buy’ rating maintained
By H1FY22, SRL intends to launch projects in Vasai and Vasind as well as the new phase in Naigaon (Phase III).
Sunteck Realty (SRL) clocked robust new sales of Rs 3.5 bn in Q3FY21 (up 7% y-o-y, 75% q-o-q) aided by release of new inventory in ODC 4. Management stated that momentum in housing demand is sustaining in both completed/nearly complete inventory and under-construction projects. The company intends to launch the Vasai, Vasind and Naigaon Phase III projects/phases next year.
SRL’s healthy leverage and asset-light strategy will allow it to enhance project portfolio at a healthy pace, in our view. We believe launches/pre-sales will determine the stock’s trajectory. Maintain Buy with a TP of Rs 463.
Robust pre-sales; best-ever collections: SRL delivered Rs 3.5 bn in pre-sales in Q3FY21, up 7% y-o-y and 75% q-o-q. Sales were aided by ~Rs 1.2 bn in bookings from newly launched inventory in ODC 4. Management indicated the strong housing demand is attributable to the stamp duty cut in MMR and low mortgage rates. Unlike last quarter, when ~80% of bookings pertained to already completed projects (such as Sunteck High and ODC Phase I), this quarter witnessed good demand for under construction projects (~60% of bookings).
We believe this indicates the strength of underlying demand. The company is looking to complete the two commercial projects in BKC over the next 12–18 months. Collections during the quarter came in at Rs 2.5 bn (up 52% y-o-y, 79% q-o-q) and are the best ever for the company. Consequently, net debt slid ~Rs 320 mn q-o-q to Rs 7.6 bn. Net debt to equity stands at a healthy 0.27x (0.28x in Q2FY21).
Strong launch pipeline to boost sales momentum: By H1FY22, SRL intends to launch projects in Vasai and Vasind as well as the new phase in Naigaon (Phase III). We believe the launch of these projects will be a key milestone that would help SRL enter the next level of growth. In addition, the company has potential unsold inventory worth Rs 13–14 bn in ODC projects (out of which ~Rs 10 bn is in ODC 4) and ~Rs 5 bn in Naigaon Phase I/II.
Outlook: Attractive— RERA-driven consolidation bodes well for SRL given its low gearing, which provides room to add projects and grow its NAV. We remain positive on the company’s long-term prospects and maintain ‘BUY/SN’ with a TP of Rs 463 (on a par with an NAV of Rs 463) while continuing to follow the old accounting standards.