Stock Fundamentals

Why the stock of Sunteck Realty is a good buy

Bavadharini KS | Updated on January 09, 2021

Well-poised to benefit from housing-friendly measures announced by the government

The Covid-19 impact has resulted in demand slowdown in the real-estate sector. To give a boost to the residential segment, the Centre has announced a slew of measures including its push towards affordable housing segment, and interest rate concessions through credit linked subsidy scheme. This along with RBI’s interest rate cut and stamp duty rate reduction from the respective state Government are not only expected to bring back home buyers to the market, but also reduce the level of completed inventories in the respective states.

The Government of Maharashtra, in particular, in addition to stamp duty rate reduction, recently announced discount of 50 per cent on premiums, including premiums for FSI (floor space index), lifts and lobbies. This concession applies for all new and on-going projects till December 31, 2021. This benefits both home buyers and developers in Mumbai.

In this regard, Sunteck Realty, a Mumbai-based developer, is well-placed to benefit from these measures. This is thanks to the company’s prime locations of properties, ability to command better prices and presence in key cities. This has helped the company to tide over the challenging market conditions. It was able to maintain stability in new bookings. Home buyers are now more inclined towards ready-to-move properties, and the company has better access to completed units as well as projects that are nearing completion. This provides a good growth visibility for the company.

The stock has more than doubled since its low in May, 2020 from about ₹150 to ₹363 now. Investors with a two- to three-year perspective can buy the stock. It trades at 22 times its likely per share earnings of FY22, a tad cheaper compared to peer Oberoi Realty (23 times). With comfortable debt position and multiple projects in the pipeline, the company’s growth prospects and revenue visibility look healthy.

Revenue to improve

Sunteck Realty derives nearly 70-80 per cent of its revenue from its residential segment while the balance is contributed by the commercial segment. At a time when the demand for house property appears challenging amid pay-cuts and job losses, the company was able to improve its new bookings (value) -- up 96 per cent during the September quarter of FY21 compared to the same period last year. This is mainly due to the company’s operation in micro markets of Mumbai, including Oshiwara District Centre, Naigaon and Vasai where the completed inventories are low.

Further, the company has sufficient inventories and is working on projects that are nearing completion. Sunteck West World (Naigaon), a mid-income project, only about 20 per cent of inventories remains to be sold. Sunteck City Avenue 1 (Goregaon), where the occupancy certificate has been issued, has about 30 per cent of unsold inventory. The company has projects, including Sunteck City Avenue 2 (Goregaon) and Sunteck Maxx World, that are nearing completion which would aid in improving cashflows going ahead.

The company’s presence across residential housing segments -- premium, luxury, ultra-luxury and affordable housing -- has helped it handle challenging market conditions, price fluctuations and sell inventories. For instance, during the peak of the lockdown between March and June, the company witnessed higher traction in its luxury and premium segments. In the June and the September quarter of FY21, the premium and luxury segment contributed 48 and 56 per cent of new bookings for the company. The fall in housing prices in Mumbai market along with favourable measures from Government helped sales.

Many projects lined up

According to Knight Frank India, a real estate consultant, Mumbai market registered record levels of sales registration in December quarter (CY 2020) thanks to the Government incenives. In this aspect, Sunteck’s growth prospects appear healthy with the improving residential demand conditions. With construction activities back to normal levels, according to the management, this would help keep up the delivery timeline of future projects.

While inventory levels with the company across segments are declining, Sunteck has multiple projects lined up for launch in FY21 and FY22 which would boost its revenue in the future. The company has plans to launch phase 3 of Sunteck WestWorld (Naigaon) and residential projects in Vasai and Vasind regions. The company has already three Sunteck City projects in Goregaon. Now, it plans to launch one more tower in the same region under the same project. Further, the company has projects in mid-income category as well and it has gained traction since March this year. In Sunteck Maxx World (mid-income category), an on-going project, the company was able to sell 73 per cent of its inventories.

Healthy financials

The revenue for Sunteck registered a growth of 8 per cent y-o-y at ₹143 crore, thanks to better collection during September quarter. But its profit declined by 50 per cent y-o-y to ₹14 crore, this is mainly due to change in accounting method from percentage completion method to project completion method. Its debt equity ratio is at 0.28 times giving room for expansion in the future.

Published on January 09, 2021

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