Sunteck Q3 Concall: Management tone was overall bullish
-
Launched the second tower at Sunteck City 4th Avenue, ODC
-
Good demand growth witnessed in residential housing (premium affordable homes)
-
Sales collection trajectory has improved. Highest ever collection in the qtr of 253 crores (79% qoq growth)
-
Confident of increasing market share driven by new geographies and increasing contribution from the âWorldâ brand. Brand contributes â of revenues and going forward expects to derive 50%.
-
All construction sites are operating at precovid execution level
-
Received OC for Gilbird Hill, Sunteck City Avenue 1
-
Pre-sales mix : 55% ODC, 18% Naigaon, 28% -Others
Collections: 45% ODC, 26% - Naigaon, 29% - others -
Targeting vasai and vasind project launch before first half of FY22
-
Naigaon - looking for a phase 3 launch
-
Andheri West - there are some concerns, in talks with JV partner.
-
Reduction in cost from Govt: A positive for the entire industry. FSI premium has been reduced(50% reduction) only in BMC(Mumbai) and not across Maharashtra. Benefit will accrue only for ODC project and commercial project in BKC. In terms of JV partner, benefits will go to JV partner(still very early to comment, will wait for more clarity).
-
Potential revenue from Inventory left in ODC : (Launched till now) 1300-1400 crores (of which 4th avenue - 1000 crores). There will be many more launches. ODC - 5th avenue is a commercial project with total 3 million sq ft area. Can convert part of the commercial to residential if the company wants to change the mix according to the demand. In the next few months, will look for construction of commercial part.
-
Naigaon West world and max world - 500 crores(unsold potential). Have 7.5 million sqt yet to be launched.
-
Future expansion: Preference will be towards asset light model. However, if the company finds any good opportunity then it will go for land acquisition as well. There are many opportunities in the MMR region. PE players are ready to fund equity for new projects.
-
Construction status of BKC Commercial projects: Sunteck IKon - at 3rd level of slab. BKC 51 - looking to complete over a period of 18 months.
BKC Residential - unfortunately, have not been able to sell the inventory in the past 2 qtrs. However, seeing some inquiries recently. Hopefully, looking for some positive outcome in this qtr. -
On delay of OC received for ODC: Avenue 1: Project was launched in 2011-12 and has recently received OC. Company was the first one to develop projects in ODC under MMRDA scheme and not many companies had applied. That is why the company received the land at cheap prices. Clarification and Approvals took time which delayed the overall process.
-
Vasind will be on the aspirational luxury side and Vasai will be a mix of both aspirational and mid income. Vasai West project is in a posh location.
-
Naigaon: All developers put together were doing 15-20 apartments per month before Sunteck entered the market. Sunteck completed 20 towers in less than 18 months in Naigaon(given COVID scenario)
-
Expecting Mumbai market to grow by 10-15%.
No. of developers have reduced by 75% since 2011 and will continue to consolidate in next 2 years
India Ratings has revised Sunteck Realty Limitedâs (SRL) Outlook to Positive from Stable while affirming its Long-Term Issuer Rating at âIND AA-â.
Some pointers from the report:
-
The market share of grade I players rose to 17.0% of the total floor space sold in 3QFY21in SRLâs local market from 6.8% in 2018. Ind-Ra expects this phenomenon to continue as grade II players have been finding it difficult to access financing, and also, buyers have become increasingly wary of the formerâs ability to deliver projects on time.
-
SRLâs business model is focused on the residential segment, and hence, it would not be affected significantly by Work from Home phenomenon.
-
SRLâs completed, under-construction and forth-coming projects are adequately diversified across various price points. Around 18%/ 27%/ 55% of the inventory are in the price ranges of INR45,000-INR60,000 per square feet (sf), INR13,000-INR20,000 per sf and INR4,500-INR5,500 per sf, respectively.
-
Although SRLâs projects are mainly based in the Mumbai Metropolitan Region, there are significant differences in the customer mix, as the projects are spread across various locations such as the Bandra-Kurla Complex (18%; ready unsold inventory), ODC, Ram Mandir (14%; completed + under-construction + forthcoming), Naigaon (10%; completed + under-construction + forthcoming), Vasai (35%; forthcoming), Vasind (9%; forthcoming) and others (13%; mostly consists of forthcoming projects). Having projects spread across locations and belonging to different price bands enhances the companyâs ability to cater to the needs of various customers.
-
Low Execution Risk for Ongoing Projects; Asset-light Model : SRL has approvals/clearances for all its ongoing projects, thus protecting its near-to-medium term cash flows from any delays in statutory clearances/approvals. Also, the company has been mainly focusing on projects through joint ventures or development agreements, thus protecting the developer from huge upfront land acquisition cost.
-
Cash Flow Visibility in Residential Projects over Near-to-Medium Term : SRLâs share in the total development portfolio (completed + ongoing + forthcoming) under its joint ventures is around 14.58 million sf in residential projects. Of this, the area under completed and ongoing projects is around 6.97 million sf; of this, 73% has been sold out and the balance is likely to be sold over 4QFY21-FY24. The remaining 7.61 million sf (includes 3.54 million sf in affordable segment in Naigaon and Vasai and 4.07 million sf in Vasind and new project) will be launched in phases over 4QFY21-FY24.
-
Ready Inventory in Premium Segment and Mid-segment Projects : SRL has strong financial flexibility due to the completion of its three premium projects at the Bandra-Kurla Complex and other mid-segment projects across various locations. All these projects have a ready-for-possession inventory. At 9MFYE21, the companyâs share in the completed unsold inventory under its joint ventures was 0.50 million sf, which was worth INR20.4 billion (company estimates). The average selling price of the inventory was around INR45,000-50,000 per sf for the premium BKC projects and INR5,500-INR15,000 per sf for the mid-segment projects. Against this, the total outstanding debt was around INR8.6 billion at end-9MFY20.
-
Forthcoming Commercial Projects: SRL diversified into the commercial projects segment through its joint ventures in 9MFY21, with a space of around 3.39 million sf (SRLâs share: 3.17 million sf). Of this, 0.11 million sf (SRLâs share: 0.05 million sf) has been completed and 65% of the area has been sold off until 9MFYE21. SRL received 92% of the total sales value of INR0.26 billion while there is no debt on commercial project.
Construction work for 0.48 million sf (SRL share 0.31 million sf) is under-way. The pending construction and approval cost at 9MFYE21 amounted to INR0.95 billion, which is likely to be partially funded by free cash flows from residential projects (after meeting all their costs) and project-related debt. Any significant delay or cost overruns in these projects or higher-than-expected debt would remain a key rating sensitivity.
Furthermore, SRL has 2.8 million sf of forthcoming commercial projects, which are likely to be launched over FY23-FY24. The company will either do an out-right sale or enter into a lease, depending on the prevailing market conditions.
Detailed presentation submitted by the co.
5th Avenue at ODC alone has equity value of Rs.5250crs > M.cap of the co.
Wow this is a good presentation.
Are the companies allowed to do their own valuations and share with the public?
Although at first glance it looks like they r talking about potential mcap which they should get,but in the presentation they hv only mentioned about the value of their projects.
By equity value of Avenue 5, I think they r referring to the market value which they can get, if they had to sell stake in that project.
While it is an informative presentation, why is it there at all? Should the management be putting out presentations like this to guide how the market ought to value their company?
Something about this makes me uncomfortable.
Invested near the March-May bottom. 3% of PF, evaluating whether to add big or exit as I am attempting to consolidate to about 15 stocks
Presentation is very detailed. Happy to see management sharing all the details with the investors. Most of the questions asked on the concall (repeatedly) have been answered through the presentation.
Presentation is all about valuing the companyâs inventory and not the company itself. All it does is shows the expected revenues from all its projects(completed and ongoing) and an insight into its future upcoming projects.
On 5th Avenue, management alluded that if the demand for residential is high then it might convert some part of it into residential. Also, they will take a call on construction after taking into consideration the current landscape in next few months time.
The inventory value of completed and ongoing projects(only residential) is ~3250 crores. A discount of 20% will fetch the inventory value at ~2600 crores. Current Mcap - ~5000 crores, so the company is trading at 2 times of this discounted inventory value which is decent and gives a fair amount of margin of safety.
I have not considered commercial projects and other upcoming projects.
Disclosure: Invested Hence views may be biased.
Sorry, how did you define the margin of safety?
Market cap is higher than the inventory value. I think we would have a margin of safety id it was a reverse i.e. inventory is more than market cap⌠Isnât it?
Hi Nikunj,
I have considered only completed projects plus ongoing residential projects. On top of it, discounted the value by 20%.
Have not considered ongoing commercial projects: Estimated project margin of 485 crores
Sunteck Crest, Andheri (E)
Sunteck Icon, BKC
Sunteck Gateway 51, BKC
Potential equity value from commercial and retail project (5th Avenue): ~Rs. 5,250 crores. Potential from Sunteck World - 3350 crore.
Sunteck has revenue visibility in terms of projects on its hand. Upcoming projects like Naigaon, Vasai and Vasind are targeting affordable housing segment. Company has moved from High Value Low volume units to Good value high volume units (less than 1 crore) given the demand for the segment.
Below is the PB chart for RE players(10 year period). On an avg, RE players have traded at ~2 times bookvalue.
Correct me if I am wrong but I think this must be the case with all the real estate companies. If you look at kolte patil devs ltd., at the end of march 2020 the value of their completed + Ongoing projects was about 2700 crores (Mcap - 1900 Crs).
See article on money control, properties worth 34,000 crores were sold in December 2020in Mumbai only ! Sales up 72% YOY and 2% down MOM
I remember watching an interview by Mohnish Pabrai from 2018 where he shares his point of view on correctly valuing real estate companies, which he believes most people do wrongly.
He said people tend to look at the earnings that will come from the present and immediate future projects and equate it to the enterprise value to get a sense of whether the company is fairly valued. This he believes is wrong, as just like in other industries, even real estate companies will have new projects and will have economies of scale as they become bigger, and so one must get a sense of the cash flows over the life of the company to value it correctly.
Sunteck is showing us a potential earnings of much more than its present market cap over the next few years. This is not the value of the projects, but the value of the equity that will get added - potential net earnings. Looks like a lot of margin of safety, and deep value
Another JDA signed for a luxury waterfront development in Mumbai
Sunteck Realty operational numbers FY21
Looks good. Its playing out as expected i think.
- Reputed players gaining market share from other players
- Doing new projects in asset light model.
Imo Mumbai Real Estate post RERA and GST has become a really high entry barrier business (capital intensive) with few players gaining market share and continuing growth over a long period of time.
It is a rare case of widening of moat for branded players post regulations like GST and RERA.
Sunteck being a combination of a good promoter entity and widening moat, seems like a good business to associate with imo.
My analogy in building this framework was similar to Alkyl and Balaji amines. Where their moat has widened due to regulations and market share is consolidated. (Probably in very long term)
Also, do check out John Arrillaga and how his expertise in a single area of real estate made him a billionaire. (Can be found in Mohnish Pabraiâs talks) Sunteck and Oberoi are majorly the only players understanding the Mumbai RE dynamics thoroughly. (And my perception is that Arrillagaâs story is what led Pabrai to Sunteck)
P.S. Personal views and positive criticism appreciated
Agreed with @SkillHouse , Mr. Pabrai has spoken highly of sunteck realtyâs code of conduct of business. He pointed out that Sunteck is doing the business the right way in a market where half of the property transactions are in black. Also mentioned in a talk with Niraj Shah that Mumbai is very clustered market and has that vibrancy.
I read an article of forbes, on Mr. Kamal Khetan, which draws our attention to the fact that when nobody wanted to be in BKC, Mr. Khetan envisioned that it was a good opportunity because of the developments happening around that area. A similarity in todayâs times, Sunteck has saleable property in Goregaon which they claim is next BKC because of the companies having their back offices there.
Also in their Q3 FY21 concalls, Mr Kamal Khetan declined any thoughts on expanding into other geographies apart from Mumbai BKC and MMR etc.
And he also stresses on the fact that he doesnât want to stretch the balance sheet just for growth. They have sources to fund purchases readily available by PE funds but they want to stick to asset light without compromising growth.
So definitely promote quality seems to be at par.
Disc: Invested at early 200 levels, so views can be biased