India Ratings has counted the developer’s high value ready inventory in Bandra-Kurla Complex, sustained high profitability
India Ratings has counted the developer’s high value ready inventory in Bandra-Kurla Complex, sustained high profitability, moderate financing risk and low execution risk for ongoing projects as key drivers for the rating.
The developer has five major ongoing projects that are strategically located across Mumbai mainly in Bandra Kurla Complex (BKC), Goregaon (West), Borivali (East), Andheri (East) and Airoli. These projects are likely to contribute approximately 85-90% to sales and collections over 2016-17 to 2019-20, India Ratings said.
The company’s BKC project, has ready-for-sale inventory, of which more than 70% is sold out. Further, the company has 23 acres of land parcel in Goregaon, on which it has launched two projects Sunteck Avenue 1 and 2 on 7 acres and has three upcoming projects on the remaining area.
Sunteck Realty generated high EBITDA margins of over FY14-FY16 (FY16: 31.8%, FY15: 44.2%, FY14: 30.1%) owing to increased contribution from the BKC project, which commands high margins in its ultra-luxury and luxury segments. In the near-to-medium term, the ratings agency expects profitability to remain at the current level as the BKC, Goregaon, Airoli, Andheri and Borivali projects are likely to contribute approximately 85-90% to the top-line over FY17-FY19.
India Ratings added that the company acquires land parcels either through closed auctions conducted by government agencies, outright purchase from corporate players or through joint development agreements which help keep its land price under check. The company prefers to execute projects outside Mumbai through joint development agreements.
Sunteck Realty’s joint ventures are with Piramal Group in a 50:50 partnership. The Piramal Group is also a minority stakeholder in the BKC project. The company’s strategy is to monetise land in 12-18 months’ time period. It has approvals/clearances for all its ongoing projects, thus protecting its near-to-medium term cash flows from any delay in statutory clearances/approvals, the ratings agency said.
Sunteck Realty sold Rs 550 crore of inventory in 2015-16, which was lower than India Ratings’ expectation due to delay in receipt of commencement of construction certificate for Signia Waterfront project, pending Oshiwara District Centre notification for Sunteck City, Goregaon project, and lower-than-expected sales for Andheri, Borivali and Nagpur projects. This resulted in weak cash collections of Rs 480 crore in 2015-16.
Until 2015-16, Sunteck Realty has sold about 46% of the total launched 3.5 million sq ft and incurred 80% of the project cost (construction costs, and FSI), while it collected 72% of the total sales value. With all approvals/clearances in place in India Ratings’ base case, the company is likely to have generated collections of Rs 650 crore in 2016-177 and intends to generate Rs 820 crore and Rs 1,460 crore in 2017-18 and 2018-19, respectively, India Ratings said.
As on March 2016, the developer achieved cumulative sales of around Rs 3,710 crore from its ongoing projects and collected Rs 2,670 crore as advances from customers, against the tied-up sales. According to the ratings agency, The company is yet to incur construction and FSI cost of Rs 750 crore for its ongoing projects. Although the land cost is fully paid-off, the FSI cost for the Goregaon project will be incurred during the course of the project.
As of April 2017, Sunteck Realty had an unutilized bank facility of approximately Rs 100 crore. Additionally, the company’s working capital utilisation during the 12 months ended December 2016 was low at around 15-25%, India Ratings added.
Walls N Roof Comment : Sunteck Realty has emerged as one of the forerunners in the real estate space. The group is known for their luxurious and ultra-luxurious projects across Mumbai. The group has various landmark projects and a few of them include Sunteck Avenue Goregaon west, Signia Pearl and Isle BKC, Signia High Borivali east and many more. The group has developed over 2 million square feet of area. With the growth and stability witnessed with their projects, the group has been affirmed with their rating of A+.