Jefferies India has cut its target price on Sunteck Realty Ltd to Rs 415 a share from Rs 621 a share amid weak earnings. The brokerage house, however, maintained its 'buy' rating on the stock.
Sunteck, a real estate company, faced a challenging year with weak financial performance. In the fourth quarter (Q4), it reported a loss of Rs 30 crore, contributing to an overall disappointing year. Despite this, the company managed to achieve a small net profit of Rs 10 crore for the fiscal year 2023 (FY23).
The company experienced a significant 29 percent decline in revenues to Rs 360 crore during FY23, primary because of sluggish offtake in its completed projects in the Bandra Kurla Complex (BKC) area, along with the absence of any other major project completions. As a strategic decision, Sunteck opted to lease out their commercial projects in BKC instead of pursuing sales, as they observed a strong yield of over 20 percent on their cost.
"Weak performance of the BKC projects (Rs 0.8 billion sold versus Rs 15 billion inventory) in FY23 and some launch delays drive cuts to our FY24/25 revenue estimates by 13 percent/26 percent and earnings by 47 percent/34 percent. Pre-sales for FY24/25 are changed to a lesser extent i.e. 11 percent/2 percent. Though some listed companies have demonstrated much faster sales growth as the housing cycle strengthened over the past 2 years; we find Sunteck to be on a steady 20-25 percent pre-sales growth path," Jefferies India said in a note to investors.
Recently, Sunteck reported a boost in pre-sales during the fourth quarter (4Q) due to the successful launch of their new project in Mira Road. They achieved a 12-quarter high pre-sales figure of Rs 540 crore, up 7 percent year-on-year (YoY). Looking at the overall fiscal year 2023 (FY23), pre-sales showed a significant 23 percent on-year growth to Rs 1,600 crore which was fell short of the management's initial guidance of Rs 1,800 crore provided at the beginning of the year. The management attributed this shortfall to delays in project launches, such as Mira Road towards the end of the year, and the postponement of the Kalyan project to the second half of FY24.
"We assume development company pre-sales to record a 20 percent+ CAGR over FY22-25. The housing market is expected to be an upcycle, particularly in the home market of Mumbai. Cap rate at 8.5 percent, discount rate at 12 percent," the Jefferies report added.
In an upside scenario, Jefferies see's its target price at Rs 600 a share, up 112 percent from current market price. "Higher-than-expected sales growth, price appreciation and / or new project additions could drive upside surprises and the stock could see significant NAV upgrades. Lower interest rates could also be a trigger," it said.
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