Buy Sunteck Realty; target Rs 500: Emkay

Emkay's research report on Sunteck Realty  (SRL)

• SRL sells Rs 912mn worth in Q2FY14 against Rs 910mn QoQ, in-line with our estimates. Collections at Rs 895mn vs. Rs 1050mn QoQ, continue to disappoint
• Launches Sunteck City 2, Goregaon in Q3FY14 with 0.8msf of SBA. Sold 4 percent for average realisations of ~Rs 13000/sf. Sunteck City 1 has unsold inventory 0.5msf (67 percent of SBA)
• Gross debt remains unchanged at Rs 5.1bn over FY13. On conservative basis, the cash inflows in H2FY14 should be more than enough to meet committed cash outflows.
• Maintain Buy rating with a target price (TP) of Rs 500. Unsold inventory from ongoing projects at Rs 53bn while cashflows from sold area at Rs 13bn is equal to o/s construction cost of Rs 13bn

" Sunteck Realty Ltd. (SRL) collections at Rs 895mn in Q2FY14 and Rs 1.9bn in H1FY14 have been disappointing. The same should get covered in H2FY14 as company launches new projects and also completes Signature Island, where outstanding collections from sold area stands at Rs 3bn. Also, as Sunteck City 1 crosses the plinth level in Q4FY14, the collections from the project will improve. We expect collections of Rs 3.4bn in H2FY14 against management's expectations of Rs 4bn."

"SRL spent Rs 890mn towards construction and Rs 450mn towards advance taxes in H1FY14. Considering revenue booking of Signature Island in Q4FY14, the tax outflow would be higher in FY14. In H2FY14, construction cost outflow should be ~Rs 1.1bn with another Rs 1.30bn towards taxes and Rs 0.47bn towards payments of premium for land FSI to MMRDA. On our conservative expectations of Rs 3.4bn of collections, the total outflows of Rs 2.9bn would be more than met."

"SRL has pre-launched phase 2 of its Sunteck City at Goregaon West, Mumbai. The strategy to launch the phase 1, despite of 66 percent unsold inventory in phase 1, is to launch sub-Rs 10mn product of 1 ½ BHK. The company believes that due to lower affordability quotient in Mumbai housing market, the requirement of sub-Rs 10mn product is high. In a week's time of its launch the project sells 0.03msf, 4 percent of its total SBA of 0.8msf for an average realisation of Rs 12900 / sf."

"SRL's valuations remain attractive on the back of huge value of unsold inventory from the ongoing projects. Company's key project, Signature Island, is expected completion in Q4FY14 which has unsold inventory of atleast Rs 15bn (59 percent of SBA). Sales run-rate of Signature Island is expected to pick up post completion considering it being the only super luxury ready-to-move-in product in Mumbai. As on Q2FY14, the o/s collections from sold area of the ongoing projects are equal to the o/s payments to complete the projects," says Emkay Global Financial Services research.

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