Sunteck Realty Maintains Growth Momentum

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Howdy Toasters!

In today’s issue of the Morning Toast, we discuss:

CPI inflation picks up, hitting vegetables the hardest!
Sunteck Realty continues strong growth momentum
An education concept to keep you chugging along

CPI inflation picks up, hitting vegetables the hardest! What’s up and what do you need to know? 😰

Consumer Price Index rose to 4.48% from 4.35% earlier for the month of October.
All components like fuel, core and food (esp vegetables) contributed to this push
Nov’21 inflation is estimated to be around 4.9% after a little relief from duty cuts in fuel

What’s the division like? Can we get some numbers? 🙄

The food category picked up pace by 2.58% MoM (0.85% YoY) after two months of weakness. (Vegetable prices surged 14.2% MoM in Oct’21.)
Meanwhile, energy inflation was higher at 14.3% YoY (up 0.98% MoM) while the transport and communication (T&C) component witnessed an increase with 10.9% (up 1.1% MoM)
Even though housing declined in Sep’21 (-1.18% MoM), it surged 0.93% MoM, while the Personal Care & Effects segment gained sequentially (0.5% MoM), while education inflation halved to 0.12% MoM.

Tell us more. What about Industrial Production? 🧐

Industrial production grew by 3.1% YoY in Sep’21 but was down significantly from 12% growth in Aug’21.
Activity levels across sectors surpassed pre-Covid levels in Sep’21 (with the headline index now 4.1% above the Sep’19 level)
Sector-wise, manufacturing rose 2.7% YoY and was led by electrical equipment and textiles.
Within manufacturing, motor vehicles and transport equipment de-grew in Sep’21 (-9% YoY,-3% MoM) as chip shortages continued to hamper production. Mining grew by 8.6% YoY (-8.4% MoM) and electricity output rose by a meagre 0.9% YoY (-11% MoM).

What about the way forward? What does Nov’21 look like? 🤔

Nov’21 may see an uptick in vegetable prices, but unlikely at the same pace as Oct’21
Duty cuts in fuel could aid inflation by ~25bps with an indirect impact of 15-20bps in the next few months

Dammnn okay, what about FY22 in general? 😕

Inflation could end up at > 5.6% for this year for a variety of reasons – high fuel costs, input pressures and supply chain bottlenecks, high imported commodity inflation etc
In this backdrop, it is unlikely that the MPC will step in and aid some relief and would continue to focus on ensuring that the post-pandemic growth is sustainable

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Sunteck Realty continues strong growth momentum 🐱‍🏍

A leading Mumbai Metropolitan Region player, Sunteck has projects across Vasai, Vasind, Borivali, Kalyan, ODC, BKC & Naigaon. The company has unique product positioning, targeting aspirational/luxury projects in extended MMR regions

Sunteck Realty pre-sales increased 55% QoQ and 36% YoY to INR 2.6 Bn, heavily aided by Oshiwara District Centre (modeled along BKC) and Naigaon districts, with both regions contributing ~75% of sales
The company recorded EBITDA % expansion by 5% QoQ, aided by a higher share of revenue recognition from ODC, and better pricing from projects launched in Naigaon (leading to higher realisations)
Collections are running strong for the company, with collections / sales (key metric when tracking execution across realty companies) on a four-quarter basis has improved to 82%, on account of greater focus towards execution
The company has a fair few launches planned for the H2, with Naigaon Phase 3 (Phase 1 / 2 contributed ~5Bn to revenue over FY19 / 20) and Vasai likely to provide added impetus to sales/collections
Likewise, Sunteck has unsold inventory of INR 10-11 Bn (including higher floors) in ODC (~50% of sales in FY21), which will likely hit the market during the last 2 quarters

Interesting! Tell me more? 🧐

From a longer-term perspective, the company’s acquisitions of four land parcels (in Vasai, Vasind, Borivali & Kalyan) in the last 12-18 months has further diversified its project portfolio, with each micro-market catering to a different customer profile
Following the value creation in its early projects in the CBDs of BKC & ODC, Sunteck identified the Naigaon market in FY18 and aimed to execute along similar lines (product positioning, limited upfront costs, and attractive revenue share), with the company selling ~1 Million Sq.Feet in the first year itself
The company has historically structured most of its JV / JDAs development deals with limited upfront capital (visible in low D / E), thus ensuring high project IRRs (see image below)
Unlike other developers, Sunteck is in a fairly comfortable B / S leverage position, with ready inventory + receivables of over INR 30 Bn against its net debt of INR 5 Bn

Nice! Final thoughts? Stock perspective, valuations, longer-term outlook? 🤔

The company has favorable supply dynamics in key micro-markets, that are poised to benefit the developer heavily, especially with the lack of Grade A developer competition and unique project positioning (aspirational luxury & more)
The stocks performed in the medium term (+36% YTD), with H1FY21 a wipeout (due to Covid-19), and returning demand, the company is likely to post strong growth in the ensuing quarters

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What else caught our eye? 👀

Fed pulling back may cause havoc

Fed is planning to pull back its $80 bn a month buying spree and the two-year treasury yields rose 10 basis points in response
This may also lead to anomalies in pricing of treasuries – their yields are used to value ~ $50 trillion in assets around the globe
Meanwhile monthly auctions for 20-year yields will continue to gauge if the market can survive without Fed support

Future for digital gold and crypto assets

The gov namely the RBI, SEBI and finance ministry are looking to bring both digital gold and crypto-assets under their purview
It may tweak the SEBI Act among others, and may even categorise digital gold as a security
SEBI does not have systems in place to regulate crypto, while the RBI does not want to get into something that is traded/settled which leaves the finance ministry to come up with a solution

Maruti Suzuki and CNG

Maruti Suzuki India is actively pushing its CNG segment amid increased fuel prices and drop in diesel car sales
With the rapid expansion of CNG dispensing outlets across the country, it is expecting its sales to double next fiscal year
They currently have a 85% share in the domestic CNG space