Stock Fundamentals

Sunteck Realty: Standing tall in tough times - Buy

Bavadharini KS | Updated on August 18, 2019 Published on August 18, 2019

With multiple projects in the pipeline, the company’s growth prospects look healthy

The first half of 2019 witnessed a slow recovery in the real estate market, with strict regulatory norms, put in place two years ago, paying off.

The Centre’s increasing focus on the affordable housing segment further aided realty companies.

However, liquidity stress, lack of buyers’ confidence in the market and unsold inventories across segments (which could take about two years to sell) are adding pressure on the sector. Various sops offered by the Government in the Budget are yet to boost demand significantly.

But for Sunteck Realty, a Mumbai-based real-estate player, favourable location of the properties, ability to command better prices in the ultra-luxury and luxury residential segments and strong financials have helped it tide over rough times and grow revenue.

A lower inventory in the luxury segment bodes well for the company.

 

 

 

Investors with a two to three-year perspective can buy the stock. At ₹460, it trades at 14 times its likely per share earnings of FY21, a tad cheaper compared to peers Oberoi Realty. With multiple projects in the pipeline, the company’s growth prospects and revenue visibility look healthy.

Projects in the pipeline

The company operates mainly in the residential segment, that contributes over 70 per cent to its revenue. It also has presence in the commercial space, which accounts for the rest of the revenue. The company acquired land parcels, mostly in the micro markets of Mumbai (Bandra Kurla Complex, Oshiwara District Centre, Naigaon) where the inventory overhang is low. This helped the company monetise properties at a fast pace.

Also, the company’s diversification across residential housing — premium, luxury, ultra-luxury and affordable housing — has helped it handle price fluctuations and sell inventories.

Though the overall luxury market was stagnant in the last one year, it has picked up in the first quarter of 2019-20. The overall unsold inventory of luxury homes declined by 12 per cent, according to Anarock Property Consultant.

For Sunteck, in the last two quarters, about 64-72 per cent of the pre-sales (new bookings) came from luxury projects. The fall in housing prices in Mumbai market also helped sales. With declining inventory in the luxury segment, the company has projects lined up for launch in FY20. In the ODC project, Sunteck City Avenue I and II (luxury housing), nearly 70 per cent of the inventory has been sold and the rest is expected to be sold within a year. The company also has plans to launch the third phase of the project (Sunteck Avenue III) in the next two quarters.

 

 

 

Also, the company’s foray in the affordable housing segment (in Naigaon) would boost its sales momentum. During the June quarter, 34 per cent of the pre-sales was from the Naigaon project. The company sold over 175 units and plans to launch the second phase of the project by the end of this fiscal.

On the commercial front, two business centres in BKC, totalling 0.5 million sq ft, are under construction and expected to be completed within a year. Similarly, the first phase of the Naigoan retail project (mall) is underway and 50 per cent of the retail space has already been pre-leased. Both projects would significantly improve rental income in the coming years. The company plans a commercial project in ODC (Oshiwara District Centre) as well, for which approvals are awaited.

Stable financials

For FY-19, while the company’s revenue fell 4 per cent Y-o-Y because of challenges in the real-estate market, profit grew 8 per cent due to better pricing. However, the company’s June quarter performance was muted due to less-than-anticipated sales from the ODC project.

Revenue declined 17 per cent Y-o-Y and profit fell 51 per cent. Going ahead, the volumes are expected to improve. Sunteck Realty’s debt-equity ratio is fairly healthy, at 0.17 times.

 

 

Published on August 18, 2019
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