Sunteck Realty shares rally 4% after Jefferies raises target price by 33%

Sunteck Realty share price has rallied 35 percent so far in 2023.

Shares of Sunteck Realty jumped over 4 percent on October 11 as international brokerage firm Jefferies raised the price target by 33 percent to Rs 555 from Rs 415. The call comes after Sunteck's recent move to create a joint platform with the International Finance Corporation (IFC) for an affordable and mid-income housing platform in the Mumbai Metropolitan Region (MMR).

At 10:05am, Sunteck Realty shares were trading at Rs 465.20, up 3 percent from the previous closing price of Rs 450.50. The revised target price implies a 23 percent upside from the October 10 closing price.

According to Jefferies, IFC and Sunteck Realty partnering to create a joint platform with a total investment of up to Rs 750 crore provides a significant push to its growth potential over the medium to long term. The platform aims to promote the development of nearly 12,000 housing units across four to six green housing projects within the MMR. IFC's proposed investment is for up to Rs 330 crore, with the remainder to be brought in by Sunteck Realty.

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Tailwinds for Sunteck Realty

"Sunteck's deal with IFC comes as a boost to perceived corporate governance for the company. The platform, alongside any affordable housing policy benefits, raises visibility on growth and land monetisation," said Jefferies in its report. The realty major has a significant mid-income or affordable residential focused land bank in the MMR, spread across six locations. These locations provide Sunteck with products in the Rs 40 lakh to Rs 2 crore segment; part of which are likely to get targeted through the IFC platform, the brokerage firm noted.

Following Prime Minister Narendra Modi's Independence Day speech, a reintroduction of the interest subsidy component of the government's PM Awas Yojana or Housing for All (Urban) scheme seems likely soon. According to Jefferies, the impact of the scheme will be in  boosting affordability as effective house cost declines. It is also likely to boost the eligibility pool of home loan customers. With around 75 percent of Sunteck's portfolio geared to the affordable segment, its growth should accelerate.

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Sunteck Realty: Base, bull case target price

Analysts expect Sunteck to capitalise on the residential upcycle. They assume development company pre-sales to grow at more than 20  percent CAGR over FY23-26. "The housing market is expected to be an upcycle, particularly in the home market of Mumbai," said Jefferies, adding that with these assumptions the NAV-based target price comes out to be Rs 555 per equity share. Higher than expected sales growth, price appreciation and new project additions could drive the stock to Rs 620.

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