Initiate ‘buy’ on Sunteck Realty, target of `345

SUNTECK Realty has 24msf of Mumbai-centric quality land bank, ability to source value accretive land deals, reasonable balance sheet and relatively short-time for land bank monetisation. It has established its presence in the competitive Mumbai market through marquee BKC developments and is well-positioned to monetise its key Gorega on land parcels. We expect new sales to double to `10.6 billion by FY18, `47 billion of pre-tax cash flows from ongoing projects over next 5-6 years and 40% earnings CAGR over FY16-18E. We initiate with ‘buy’ and target price of `345/share derived by applying 30% discount to March 2017 NAV of `493/share.

SRL has demonstrated ability for value creation in competitive Mumbai market through: differentiated product offering in BKC (land purchased at competitive prices) for ultra HNIs; purchasing land at distressed valuations and leveraging its ability to resolve complex land ownership issues and ability to forecast and capitalise on infrastructure-led demand improvement at Goregaon. It has entered into asset-light JDA/JV agreements with land owners for project development and has received support from PE players for large upfront investments.

We envisage significant scale up in SRL’s operations underscored by improved execution and sales push in its ongoing projects and liquidation of unsold but completed inventory.