November 29:
The stock of Sunteck Realty has quadrupled in the last one year due to
better financial performance in FY17, and in the first two quarters of
FY18 , followed by revenue recognition of its two projects (Avenue I and
II) at Oshiwara District Centre (Goregaon). This is despite the slowing
Mumbai real estate market and three harsh regulations (RERA,
demonetisation and GST).
In just a fortnight, the stock has gained 11 per cent. Though analysts
see just 8 per cent further rise in the stock price given the average
target price of ₹434, there is lot of scope to revise the target price
going forward due to a lot of positive triggers. ICICI Direct and
Edelweiss Securities revised the target price on the stock by more than
50 per cent after the announcement of second quarter results.
Kamal Khetan, CMD, Sunteck, said that the next three big drivers of the
company are aggressively buying distressed assets (either greenfield or
brownfield), foray into affordable housing and build a good commercial
rental portfolio.
A strong balance sheet (0.1 times debt-to-equity ratio) after
preferential allotment by the promoters and qualified institutional
placement totalling ₹650 crore gives him the ability to dream and
achieve the above goals. Future cash flows of 57 unsold flats in BKC
(worth ₹22 billion), which has zero balance sheet cost and is expected
to be cleared in three-four years, will further aid in growth and
expansion.
Focus on ODC project
After establishing presence in the centrally-located business
district of Mumbai — Bandra Kurla Complex (one of the largest office
hubs) — with super luxury apartments, the company has now moved its
focus to execution and completion of Sunteck City in ODC, a key business
district planned by MMRDA. “Every corporate office in BKC has a
back-office in ODC. So ODC has a clear competitive advantage,” said
Khetan.
According to Axis Capital, ODC offers huge potential (cash flow of
₹2,150 crore plus annuity income of ₹470 crore). “The key USP of ODC is
its location (proximity to CBDs and SBDs like BKC, Goregaon, Andheri,
and Powai) and connectivity (via road, railway). Over the past two
years, ODC has benefitted from infrastructure developments such as
commencement of flyover, railway station (Ram Mandir), and widening of
roads around its plot,” it pointed out.
While Edelweiss believes that developments (fund infusion, affordable
housing, new projects) will propel the company to the next growth
trajectory, ICICI Direct thinks that new launches would boost sales
momentum.
Given continued revenue momentum, visibility on cash flows and strong
execution track, valuation of 16 times FY19 estimated earnings still
looks cheap.
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Next Read: Investment Strategies Silicon valley vs Warren Buffet
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