Why Jefferies sees over 35% rally on this Indian realty stock

“A near-doubling of Sunteck’s project portfolio has happened post-covid and as the monetisation of land parcels commences, we see sales delivering a 25% CAGR over FY22-25E. 70%+ of sales come from the affordable & mid-income segment of the Mumbai residential sector, where competition from organized developers is limited. Net gearing is low as expansion has been via a capital-efficient partnership model,” the note stated. 

Jefferies has initiated coverage on Sunteck Realty shares at Buy with a target price of ₹621 apiece, implying a potential upside of more than 35% on the Indian realty stock. “The price target is set at 1-year forward NAV, and we believe that as the pre-sales uptick progresses, the stock should trade closer to the NAV,” it said.

Sunteck’s larger peers that have adopted the partnership model for growth (GPL, Lodha and Prestige) trade at NAV premiums, said the brokerage, adding that earnings are below consensus as it is more conservative on project completion timelines; though the brokerage thinks investors will track pre-sales in the scale-up phase – key for outperformance.

“The company has effectively used the partnership model while adding projects, with structuring being largely on the revenue-share method. Over the past ~6 years, net gearing has stayed in the 0.1-0.2x range and operational cashflows (pre-interest and capex) have generated Rs6bn in surplus over the past nine quarters. Sustained balance sheet discipline, operational surplus, and rising monetisation should provide growth headroom,” Jefferies’ note added.

The company is well known for its high-end residential developments at BKC. “We expect the current 70%+ mix of affordable & mid-income to continue and remain the key focus area. The ticket sizes help Sunteck effectively tap the entire Mumbai Metropolitan Region (MMR) and the co has yet to see significant competition from larger, organized peers, giving Sunteck an early-mover edge,” it said.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

First article