>SUNTECK REALTY

Significant Revenue Pickup in FY13


 Reiterate Buy — We maintain a Buy on Sunteck Realty given its city-centric asset base (~90% of NAV is from Mumbai). With revenue recognition based on the conservative project completion method and ~1 msf projects coming on stream in FY13, we expect a significant pickup in revenues.


 Increasing TP to Rs455 — We incorporate some execution delays and roll forward our NAV to Mar'13E (Sep'12E earlier) – increasing base NAV marginally to Rs650 (from Rs647). In light of the continuing strategy by the company/competitors to sell selectively at premium realizations, we reduce the probability of price cuts to nil. Our TP continues to be at ~30% discount to NAV.


 Update on BKC Assets — BKC residential projects account for ~44% of gross NAV. Signature Island – 14th habitable floor completed and 3 more slabs remain to be completed. Sales have been slow in this project – management commented that it is not pushing sales here (following more of a pull-strategy, given the project stature). Targeting project completion in FY13 – minor delays v/s earlier target of FY12.


 Gearing up for launches in FY13 — (1) Goregaon – Management expects to receive the commencement certificate for its Sunteck City project (~0.65msf) shortly and is planning to launch the project in July. (2) Sunteck hopes to launch ~10msf in Thane/Mulund over FY13, post receipt of necessary approvals. (3) Strategic acquisitions on the anvil – ~30 proposals from various developers under consideration.


 Other key updates — Rentals are expected to be stable (strategy is to have rentals cover the total overheads) with Grandeur/Kanaka expected to be on the sale model. The company is not looking to change its revenue recognition policy with recent ICAI guidance note – it believes the current policy is conservative. Sunteck has aggressively ramped up its leasing/sales team from ~40 employees in 2010 to ~65 now – plans to increase overall employees to 250 by 2014.


 Limited track record — Given Sunteck's limited execution/management track record, we prefer Phoenix Mills and Oberoi Realty. Potential downside risks also include (1) potential conflict of interest with JV/JD partners – e.g. Piramal Group's 3-year non-compete agreement expired early 2010 and could impact future growth through their JV (2) lumpy earnings due to project completion accounting (3) sedate sales in some projects nearing completion (4) sector-wide risks.


RISH TRADER