Sunteck Realty Valuation – Buy: Shahad project to add NAV of Rs 103 / share
Sunteck Realty (SRIN) announced the acquisition of a new 10 msf residential project in Shahad, located in the extended eastern suburb of the Mumbai Metropolitan Area (MMR). The project was acquired under the JDA light asset model in which SRIN can have a 75-80% revenue share. Assuming a development over fiscal years 24-35E, we estimate a gross income of Rs 91.2 billion (SRIN share at Rs 72.6 billion) with a pre-tax operating surplus of Rs 26.6 billion and an increase in the net asset value of Rs 14.4 billion (Rs 103 / share).
We maintain our buy rating on SRIN with a revised TP of Rs 580 / share (previously Rs 475) based on 1x NAV incorporating Shahad’s new acquisition. SRIN has now added four new projects since March 20 with the previous three projects in Vasai / Vasind / Borivali adding 8 msf of salable area. The main risks are the slowdown in the volumes of the Mumbai real estate market and the fall in residential / commercial prices.
The Shahad project consolidates SRIN’s position in the extended suburbs of MMR: SRIN has announced its intention to develop an ambitious luxury integrated residential area spanning 50 acres with a salable area of 10 msf (2.9x FSI on the area carpet) in Shahad, Kalyan. The new project was acquired under the Joint Development Revenue Sharing (JDA) model with ~ 75-80% of revenue going to SRIN and 100% of construction costs to be borne by SRIN. This is the fourth project acquisition after March 20 from SRIN, as the company has already completed three project acquisitions. SRIN now has a significant presence in the outlying areas of MMR with 11.8 msf in area in the extended western suburb of MMR (7.3 msf in Naigaon and 4.5 msf in Vasai) and 12.6 msf in the eastern suburb extent of MMR (2.6 msf in Vasind and 10.0 msf in Shahad).
Shahad project is expected to add Rs 103 / share to net asset value: Current residential prices near SRIN’s Shahad project range between Rs 6,000 and Rs 6,500 / psf based on salable area (Rs 10,000-10,500 / psf based on the carpet area) for a similar level 1 developments (Birla Vanya). We assume that an FY24e launch because the landowner (Amar Dye Chem) may need some time to get the land conversion approvals. We are integrating the development of projects over fiscal years 24-35 in five phases of 2 msf each with a basic introductory price of Rs 6,700 / psf and a construction cost of Rs 3,500 / psf and an annual increase of 5% selling prices and costs.
We estimate that the project will generate gross revenues of Rs 91.8 billion, of which SRIN’s revenue share is Rs 72.6 billion and the cost of the project is Rs 45.9 billion, implying a surplus. operating before tax of Rs 26.6 billion over the life of the project. Assuming a tax rate of 30% and a WACC of 11%, we arrive at a NAV of Rs 14.4 billion or Rs 103 / share for the project.