Jefferies bullish on this real estate stock for excellent execution skills, low debt

Kolkata: Jefferies is bullish on Sunteck Realty. The factors that the US-headquartered brokerage house highlighted to justify its recommendation are 30% year-on-year pre-sales growth, robust collections and expanding premium segment throughout the current financial year. Jefferies has described it as one of the mid-sized real estate developers with a sound execution record.

The company also has one of the lowest debt levels in the real estate sector. It is engaged in new project launches across Mumbai’s suburbs. The focus of the company is one luxury segment now. Jefferies thinks that the growth will mainly originate from the luxury and upper mid-income segments. The projects that could lead this thrust are in BKC, Kalyan, and Mira Road. A project in Dubai is also on track and could be launched in this financial year. "The company’s strong presence across MMR, coupled with a disciplined approach to project selection, allows it to benefit from demand tailwinds in both premium and value housing,” Jefferies mentioned in its report.

Jefferies has reaffirmed its Buy signal on Sunteck Realty and has fixed a target price of Rs 575, which signals a 33% upside from its closing price on October 23. At close of trade on Thursday, October 23, the Sunteck Realty stock was trading at Rs 432.50, down Rs 4.55 (or 1.04%). Jefferies has also presented a bull situation target which is Rs 640, signaling gains of about 50%. The bear-case estimate is Rs 320, which means a 25% downside from the present levels which could happen if there are delayed approvals/launches.

Jefferies employed the net asset value (NAV) approach to evaluate the firm. It applied a 15% discount to its FY26 NAV (estimated) which is Rs 680 per share. Considering the market price, the stock is trading at 36% discount. The brokerage firm thinks it is an attractive proposition to the investor, especially considering the firm's strong brand presence in the high-potential market of Mumbai.

Jefferies has also highlighted the robust business development pipeline of the company. It has estimated a potential gross development value of about Rs 2 lakh crore. Of this amount, projects valued at Rs 45,000 crore are under execution right now. The strategy of Sunteck is to pursue joint development agreements and joint ventures. These are supposed to be extremely effective financially since it allows it to avoid debt and land costs that it has to bear upfront. "This strategy provides scalability without leverage stress,” Jefferies said.