Home / Markets / Mark To Market /  New luxury project bodes well for Sunteck Realty’s margins

Mumbai-based Sunteck Realty Ltd has entered into a joint development agreement with the owner of a seven-acre land parcel at Borivali (West) in Mumbai. The company plans to develop a waterfront luxury residential project on the plot.

According to analysts, among Sunteck’s recent initiatives, this is the only project that falls under the luxury category. So, they see the firm’s operating margins getting a boost going ahead.

Foreign brokerage CLSA expects the project to generate an Ebitda margin of around 40% compared to the 30-35% Ebitda it generates from Naigaon, Vasai and Vasind projects. Ebitda is short for earnings before interest, tax, depreciation and amortization.

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It should be noted that its projects in Vasind, Thane and Vasai fall under the affordable category, which fetches lower margins than premium projects. CLSA expects the Borivali project to add 20 per share to Sunteck’s net asset value (NAV). Sunteck has an effective 72% revenue share in the project and will be responsible for constructing and marketing the project.

The company management foresees a sales revenue of 1,750 crore from this project over the next five years.

However, some analysts expect the project to generate lower revenues.

Analysts at Edelweiss Securities Ltd estimate revenue growth of around 1,650 crore over the next four to five years from this project, assuming a selling price of around 16,000 per square feet.

“Factoring in project cost (ex-land) of 6,000 per square feet, 5% year-on-year inflation and five years of development period, we estimate project NAV of 18 per share," the domestic brokerage house said in a report on 31 March.

Besides, analysts said, Sunteck’s strategy to stick to the asset-light model will add to its balance sheet strength.

The projects in Naigaon, Vasai and Thane are based on the asset-light model, where it does not have to incur any land acquisition cost.

Meanwhile, dealer channel checks by brokerages showed that demand trends for the Mumbai Metropolitan Region have been robust, driven by stamp duty concessions.

Analysts expect Mumbai-based real estate developers, including Sunteck, to post robust sales growth in the March quarter.

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