Sunteck Realty a “Buy” with target price of Rs 585

Arihant Capital report on Sunteck Realty Limited has recommended that SRL can achieve substantial value creation in the medium term. It has given SRL a “Buy” rating and a target price of RS 585, which gives an upside potential of 40.6 per cent. Some of the key highlights of the report for your ready reference: Strong visibility of future cash flows SRL has strong visibility on future cash flows from its ongoing and already completed projects. From SRL’s 9 completed projects and 6 ongoing projects and 3 upcoming projects, the company is expected to cumulatively generate net cash flows of Rs 53.9bn. Consolidated revenue to grow at a CAGR of 15.7% over FY18-FY20E Over the past few quarters SRL is showing increased traction in its pre-sales (new bookings) volume and has reported 79% qoq growth in its pre-sales for Q4FY18 at ~Rs 1.9bn. SRL also witnessed robust collections in Q4FY18 at Rs 1.5bn, a growth of 38% yoy and 53% qoq. Going forward SRL is expected to sustain its current growth momentum and have forecasted a consolidated revenue CAGR of 15.7% in our model over FY18-20E period. AT CAGR of 13.1% over FY18-FY20E with stable EBITDA margin of 38-40% Going forward, SRL’s robust sales momentum coupled with strong execution of its ongoing projects would help the company to ramp up its earnings over the next few years. SRL is expected to report 13.1% CAGR in its earnings over FY18-20E with stable EBITDA margin of 38-40% Consistently built pipeline proves SRL’s acquisition strength SRL has a unique strategy of focusing on development of urban land plots through JDA/JV with historical property owner or by partnership with local authorities. This strategy of SRL has lent significant visibility to its project execution and accretion pipelines. SRL has shown its unique ability to predict growth areas ahead of the curve and took calculated risks by doing acquisition during peak recessionary periods. As a result the company was able to achieve well timed capital allocation which has prepared the company to capitalise on the next round of opportunity which has come up due to opening up of further acquisition opportunities post demonetisation, RERA and government’s focus on affordable housing (Naigaon project of Sunteck). Projects across different micro-markets in line with core value proposition Going forward SRL will be identifying emerging locations on the western suburbs of MMR, which are entitled for SOPs of affordable housing by keeping the unit size right. The company is planning to do extensive research on the upcoming infrastructure, ticket size etc to zero in on the locality. SRL is banking on increased volumes and faster turnaround for these type of projects to drive profitability, with an aim of value positioning with realisations around Rs 5,000/sq ft. For the large sized projects in affordable segment (like Naigaon) SRL plans to do acquisition under the asset-light JV/JDA model to mitigate risk.