He has reduced the stake in the company but not exited it completely. While he did not give any reason why he pared his stake, I suspect that the price movement was not as per his expectations and he might have found investment opportunities elsewhere. The rationale behind why he invested in Sunteck initially is available in a YT video.
Notes from Mohnish Pabrai’s Video – Great Businesses vs. Great Investments
Yes, Rinkesh. That’s correct. He now owns only 2.2% of the company, a significant reduction from the initial 9.9% investment. I’ve watched the investment video you mentioned, and I was interested in understanding what prompted the shift in his Sunteck thesis if he mentioned it anywhere. He has also significantly reduced his investment in Rain, so perhaps it’s related to market trends rather than specific stocks.
Pabrai is exiting India completely as per recent news report
Mr Pabrai is going all in on Turkey where he finds the entire market in deep value territory. In fact if anything, his selling is reliving the overhang. CLSA bought most of what he sold. The public shareholding has not increased materially.
8f9cd4f2-cd93-472c-92f0-3fa75b13ef70.pdf (294.3 KB)
Fy24 pre sales 1915
Company has missed its pre-sales target of Rs.2000 crores for the year 2023-24. Also, collections have fallen marginally during the year from Rs.1250 crores to Rs.1236 crores.
From: India Ratings Upgrades Sunteck Realty to ‘IND AA’/Stable
Expected pre-sales growth: 18%-20% in FY24 and FY25.
Collections to be lower at 60%-65% of pre-sales over FY24-FY26 as large portion of the sales have been achieved in initial stage projects
Expected to launch a commercial project of around 1 million square feet in the ODC cluster, which expects to generate rental income of INR2.0 billion-2.5 billion.
The ready-to-move unsold inventory at end-9MFY24 is worth more than INR16.0 billion.
Asset-light JDA approach
Total free cash flow (accounting for any capex/ JDA, but excluding interest) of around INR2.1 billion over FY25-FY27.
Sunteck Q4 and fy 24 result highlights
Sunteck Q4 concall highlights
Pre sales of 1915crs in FY24 a growth of 20%.
Long term credit rating upgraded to AA.
Company is now net debt free.
Expect a pre sales growth of 30-35% in FY25.
Sunteck has an inventory of around 8 months in projects under construction.
Launch pipeline:
Q2 - new phase of Mira Road and Naigaon
Q3 - 5th Avenue ODC
Q4 - Napean Sea Road
Value of inventory to be launched will be 4000 - 5000cr.
Revenue recognition to be higher than FY24 as 4th Avenue, Max World and sales from BKC will be recognized. Margins should also be better.
Value of ready to move in finished inventory is 1500 - 1600cr.
Looking for new business development in Luxury segment.
Sunteck has leased two commercial properties in BKC for rent of 70cr annually for a period of 29 years.
Looking to add new commercial property in ODC. Will use cash flow of business to create rental assets.
Disclosure: Invested
As per latest shareholding pattern, Pabrai fund has completely exited this business.
Yes, it has been known for some time that Pabrai was selling and probably the stock has rallied because the selling pressure has eased now
i remember an interview of Pabrai where he said he is moving from India to other countries like Turkey for better value/opportunities. So don’t think its specific to Sunteck. Its also evident if you look at movement of his all holdings.
I wonder why he exited entirely. Maybe he was getting better deals in Turkey as someone said earlier in this thread.
Sharing the latest results and investor presentation
https://www.bseindia.com/xml-data/corpfiling/AttachLive/ab86bada-4eee-4812-b171-b357471ffd96.pdf
Also sharing a tweet by Vineet Jain
https://x.com/vineetjain1101/status/1823956832550879413
I am just tracking. No investment.
dr.vikas
Hi @vikasbargale, Vineet Jain here 
Sorry have got been active on VP for a while and I plan to change that. No new points to add on Sunteck at the moment. I do expect the P&L to keep improving as projects keep getting completed. Need to track their execution on construction and delivery, as well as on the same of existing inventory.
Have been holding this stock from COVID levels. Disappointed with the performance until now, can anyone explain why other real state developers have outperformed sunteck. Even if we look at premium developers as well like Sobha-(MMR region), DLF, brigade & prestige.
I think Sunteck is one of the most exciting RE developers today given inflection in growth (30%+ growth in H1, 40-50% expected in H2 on back of new launches in FY25, further growth expected in FY26/27 due to new launches of NS Road and Dubai). A short thesis from my side below –
Introduction
Sunteck is a leading MMR based developer that engages in large-format, township type projects, primarily in Mumbai and its suburbs. The stock appears cheap versus other Mumbai homebuilders, like Lodha, Oberoi, or Rustomjee and has lagged over the past year in terms of stock price. A large shareholder in the Pabrai Funds has been selling shares for the past year, however their ownership has been significantly reduced, creating an opportunity to buy shares at an undervalued price. Sunteck is a lower liquidity stock, so selling from a large shareholder like Pabrai caused the stock to underperform peers from a stock price perspective, even though the business is firing on all cylinders. Sunteck never IPO’d via a traditional roadshow, but instead listed via a reverse merger, and thus shares have always been unusually illiquid for its size, so when a large holder like Mohnish who acquired his shares via a QIP sells, it can significantly pressure the stock. Mohnish has publicly stated that he is exiting India, so his reasons for selling Sunteck have nothing to do with the merits or demerits of the company, and are more of a market-call.
Sunteck is one of the few stocks in the RE sector that is still trading below NAV (sector has re-rated due to strong macro tailwinds/cycle), and the outlook for growth is very strong in terms of pre-sales, as the company has guided to 30-35% pre-sales growth this year. Sunteck has consistently delivered >20% growth in pre-sales over the past few years, and we expect growth to accelerate going forward. Sales in MMR did not see the same correction in the last decade, so sales growth in MMR has been lower than Bangalore or North India based players in the last few years. These markets had a large bust in sales leading to a low base, which makes it easy for companies in those markets to show growth over past few years. Sales in MMR on the other hand, kept growing on a more steady type pace as there was less investor interest, so end demand continued at a steady pace, and Sunteck has generally grown faster than the market/taken share.
Macro/cycle
MMR market has seen less speculation than some of the north based or Bangalore markets, and the supply constrained nature of Mumbai being surrounded by water on 3 sides means that it is harder to bring on new supply, as compared to Bangalore or NCR where the city continues to grow outward/urban sprawl occurs. Over the long term, home prices in Mumbai should rise in line with purchasing power, creating value for owners of land and finished apartments like Sunteck, whose value grows disproportionately to RE price appreciation. MMR is an especially attractive market to be a homebuilder due to its high average selling price and margins relative to other geographies, which means that margins are higher and more consistent through a cycle, with less sensitivity to construction costs.
Fundamentals and outlook
In terms of financials, Sunteck has the best balance sheet in the sector, with zero adjusted net-debt accounting for loans secured by land given to their JV partners, and negligible gross debt relative to assets or free-cash-flow. The company has been steadily paying down debt the last 3-5 years using free-cash-flow, and is in an excellent position to create value for shareholders.
Over the next three years, Sunteck has the potential to nearly double its pre-sales of 1,900 crore in FY24 – new launches in the existing bucket of projects should lead to ~2,500 crore of sales in FY25e per the company’s guidance, and new launches of projects in Dubai, Nepeansea Road, Bandra, and Borivali over the next 2 years should add another 1,000 to 2,000 crore of run-rate pre-sales, positioning the company for exceptional growth. Sunteck already owns or has development rights to construct on these land parcels, so these investments are weighing on ROIC today but produce limited pre-sales or free-cash-flow, which will change soon.
The company is growing not just its residential book of business, but also constructing annuity commercial assets for lease on its owned land parcels, soaking up the free-cash-flow from residential development at very high ROICs. The company’s existing commercial annuity portfolio already generates north of a 25%+ return on capital, and the company plans to grow this significant over the next 3-5 years, such that a large part of today’s market cap is covered by the company’s annuity assets. In the future, these assets can be put into a REIT to help highlight and unlock value.
Finally, over the longer term, Sunteck is an attractive business because it is controlled by Mr Kamal Khetan, who is a first generation entrepreneur that has built Sunteck into a leading player in just two decades, despite starting without a land-bank unlike other players in the space. We view him to be a shrewd and ethical allocator of shareholder’s capital who is razor focused on maximizing ROIC – to this end, Sunteck typically enters RE project via asset-light joint venture agreements or distressed outright land purchases, allowing the company to earn a higher ROIC than its peers. Sunteck’s ROIC on its JV’d projects has historically been off-the charts, and we expect Sunteck to continue to engage in additional project addition due to its unleveraged balance sheet and strong on going free-cash-flows. Sunteck is a value oriented buyer of RE, so they will likely acquire assets counter cyclically, being more dormant in terms of new project acquisition in heated markets like today, but not afraid to go on a shopping spree, if attractive prices present themselves.
Upside potential
Between growth in pre-sales and net-asset-value, as well as a re-rating closer to peer multiples, we think Sunteck stock has significant potential upside from current levels. While corporate governance is always a risk in the sector, Sunteck has partnered with marquee institutions like Kotak, Piramal, and IFC which is a positive signal for investors.
Sunteck currently trades at ~0.8x NAV, while peers like Lodha and Oberoi trade at ~1.3-1.6x NAV using sell-side research models – on book value, Sunteck trades roughly 2-3x book, as compared 4-6x for the sector – given that land is held at historical cost on Sunteck’s book, the undervaluation in absolute terms as well as relative terms is quite large. Over two years, we should see strong NAV growth along with a re-rating, as the company executes on growth and launches new projects, so there is room for 50-100% upside from current levels
