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Sunteck Realty Ltd. – BUY

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Sunteck Realty Ltd. (SRL), founded in 2000 by Kamal Khetan, is a top luxury real estate developer in India. The company has a portfolio of 52.5 million sq. ft. across 32 projects, divided into six categories: Uber luxury, Ultra luxury, Premium luxury, Marquee Luxury Destination, Aspirational luxury, and Commercial & Retail developments. Notable projects include Signature Island at Bandra Kurla Complex, Sunteck City in Goregaon, and SunteckWorld in Naigaon. SRL is known for financial prudence, maintaining low debt-equity ratios and strong cash flows. It has triple ISO certifications for quality, environment, and health and safety management. Strategic partners include Kotak Fund, Ajay Piramal group, and the International Finance Corporation for developing affordable housing.

Investment Rationale

Strategic Focus on Asset-light Joint Development Agreement Model

In recent years, Sunteck Realty Ltd. (SRL) has acquired several joint development agreement (JDA) projects in Borivali, Mira Road, and Kalyan, along with an outright acquisition on Napean Sea Road in South Mumbai. These JDA projects, which don’t require significant upfront cash, offer more than 13 million sq. ft. of saleable area. This strategy has allowed SRL to grow and diversify without impacting its credit metrics. The company has used an asset-light JDA approach since 2017-18, also acquiring clusters in Naigaon and Vasai, totaling over 11 million sq. ft. This model keeps leverage low, reduces financial risk, and allows SRL to quickly adapt to market changes and scale operations efficiently.

Diversification by Entering into Commercial Office Space

India is a top office market globally due to its skilled workforce, strong infrastructure, and stable economy. Sunteck Realty Ltd. plans to expand its residential projects in Mumbai and diversify into other real estate segments. In FY24, the company completed and fully leased two commercial projects, Sunteck Icon and Sunteck BKC 51, expected to generate around Rs. 350 million annually in rental revenue. BKC 51 was leased for 29 years. Additionally, the company plans to launch a commercial project in the ODC cluster, expecting it to generate Rs. 2.0 to 2.5 billion in rental income when operational.

Valuation and Outlook

Sunteck Realty Ltd. (SRL) is recognized for its premium brand positioning and strong project delivery record, led by a quality leadership team. The company aligns its projects with the socio-economic profile of the population, achieving a strong pre-sales CAGR of over 21% in the past five years. SRL aims to double its Gross Development Value (GDV) from Rs. 300 billion to Rs. 600 billion by FY25, with 8-10% of GDV translating into annual pre-sales. A redevelopment project in Bandra Bandstand is expected to generate a GDV of Rs. 5,000 million. SRL’s strong brand allows it to charge a 10-12% premium over local competitors. Projects like Sunteck Maxx World and Sunteck City 4th Avenue are expected to generate significant revenues in FY25. The company plans to launch an ultra-luxury project on Nepean Sea Road with a potential GDV of Rs. 25,000 million. Additional projects in Mira Road, Naigaon, Sion, and Borivli are planned, with a GDV potential of around Rs. 40,000 million by FY26. Based on these growth prospects, we assign a “BUY” rating with a 12-month investment horizon and a target price of Rs. 516 per share, indicating a 15% upside.

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