Sunteck Realty (SRIN) has announced a new residential project acquisition of 10msf in Shahad, situated in Mumbai Metropolitan Region’s (MMR) extended Eastern suburbs. The project has been acquired below the asset light JDA model in which SRIN may possibly have 75-80% income share. Assuming development more than FY24-35E, we estimate gross income of Rs 91.2 bn (SRIN share at Rs 72.6 bn) with pre-tax operating surplus of Rs 26.6 bn and NAV accretion of Rs 14.4 bn (Rs 103/share).
We retain our Buy rating on SRIN with a revised TP of Rs 580/share (earlier Rs 475) based on 1x NAV incorporating the new Shahad acquisition. SRIN has now added 4 new projects given that Mar’20 with the 3 earlier projects in Vasai/Vasind/Borivali adding 8msf of saleable region. Key dangers are slowdown in the Mumbai home market place volumes and fall in residential/industrial rates.
Shahad project cements SRIN’s position in MMR’s extended suburbs: SRIN has announced its plans to create an aspirational luxury integrated residential township spread more than 50 acres with saleable region of 10msf (2.9x FSI on carpet region) at Shahad, Kalyan. The new project has been acquired below the asset light Joint Development (JDA) income share model with ~75-80% of revenues to accrue to SRIN with one hundred% of building expenses to be borne by SRIN. This is the fourth project acquisition post Mar’20 from SRIN with the corporation obtaining earlier accomplished 3 project acquisitions. SRIN now has a important presence in peripheral regions of MMR with 11.8msf of region in MMR’s extended Western suburbs (7.3msf in Naigaon and 4.5msf in Vasai) and 12.6msf in MMR’s extended Eastern suburbs (2.6msf in Vasind and 10.0msf in Shahad).
Shahad project estimated to add Rs 103/share to NAV: Current residential rates in the vicinity of SRIN’s Shahad project hover in between Rs 6,000-6,500/ psf on saleable region basis (Rs 10,000-10,500/psf on carpet region basis) for equivalent Tier 1 developments (Birla Vanya). We assume a FY24e launch as the land owner (Amar Dye Chem) may possibly need time to safe land conversion approvals. We make in project development more than FY24-35e across 5 phases of 2msf each and every with a base launch value of Rs 6,700/psf and building expense of Rs 3,500/psf and 5% annual escalation in promoting rates and expenses.
We estimate the project to produce gross income of Rs 91.8 bn, of which SRIN income share is Rs 72.6 bn and project expense of Rs 45.9 bn, which implies pre-tax operating surplus of Rs 26.6 bn more than the life of the project. Assuming a 30% tax price and WACC of 11%, we arrive at a NAV of Rs 14.4 bn or Rs 103/share for the project.