The stock of Sunteck Realty has quadrupled in the last one year due to better financial performance in FY17, and in the first two quarters of FY18 , followed by revenue recognition of its two projects (Avenue I and II) at Oshiwara District Centre (Goregaon). This is despite the slowing Mumbai real estate market and three harsh regulations (RERA, demonetisation and GST).
In just a fortnight, the stock has gained 11 per cent. Though analysts see just 8 per cent further rise in the stock price given the average target price of ₹434, there is lot of scope to revise the target price going forward due to a lot of positive triggers. ICICI Direct and Edelweiss Securities revised the target price on the stock by more than 50 per cent after the announcement of second quarter results.
Kamal Khetan, CMD, Sunteck, said that the next three big drivers of the company are aggressively buying distressed assets (either greenfield or brownfield), foray into affordable housing and build a good commercial rental portfolio.
A strong balance sheet (0.1 times debt-to-equity ratio) after preferential allotment by the promoters and qualified institutional placement totalling ₹650 crore gives him the ability to dream and achieve the above goals. Future cash flows of 57 unsold flats in BKC (worth ₹22 billion), which has zero balance sheet cost and is expected to be cleared in three-four years, will further aid in growth and expansion.
Focus on ODC project
After establishing presence in the centrally-located business district of Mumbai — Bandra Kurla Complex (one of the largest office hubs) — with super luxury apartments, the company has now moved its focus to execution and completion of Sunteck City in ODC, a key business district planned by MMRDA. “Every corporate office in BKC has a back-office in ODC. So ODC has a clear competitive advantage,” said Khetan.
According to Axis Capital, ODC offers huge potential (cash flow of ₹2,150 crore plus annuity income of ₹470 crore). “The key USP of ODC is its location (proximity to CBDs and SBDs like BKC, Goregaon, Andheri, and Powai) and connectivity (via road, railway). Over the past two years, ODC has benefitted from infrastructure developments such as commencement of flyover, railway station (Ram Mandir), and widening of roads around its plot,” it pointed out.
While Edelweiss believes that developments (fund infusion, affordable housing, new projects) will propel the company to the next growth trajectory, ICICI Direct thinks that new launches would boost sales momentum.
Given continued revenue momentum, visibility on cash flows and strong execution track, valuation of 16 times FY19 estimated earnings still looks cheap.