ICICI Direct has a buy call on Sunteck Realty with a target price of Rs 525. The current market price of Sunteck Realty is Rs 487.40. Time period given by the brokerage is one year when Sunteck Realty price can reach the defined target.

View of ICICI Direct on the company:Goregaon BKC projects aid revenue growth: In Q1FY19, the company launched fresh inventory sales at Sunteck City Avenue 1 2 through “Big Home Benefits” campaign for which it witnessed robust sales of 11 units at Avenue 1 and 35 units at Avenues 2.

SRL clocked strong new sales bookings worth Rs 181.6 crore in Q1FY19, thus registering 42 per cent YoY growth.

Furthermore, sales collections also grew robustly by 23 per cent YoY to Rs 161.0 crore.

During the quarter, SRL managed to sell two units at BKC with net realisation of nearly Rs 55000/sq ft.

Currently, the unsold inventory at BKC is at 49 flats worth nearly Rs 2,200 crore.

The company is looking to monetise this in the next three to four years at two to three units per quarter, providing strong revenue visibility in the next few years. Affordable housing to drive revenue momentum: SRL plans to launch Phase I of Naigaon project in Q2FY19, which comprises 2,500 units over an area of 1.5 million sq ft (msf).

Of these, the company intends to put nearly 1,500 units for sale at launch.

Furthermore, it has guided at launching one phase of Naigaon project every year and intends to sell the entire inventory in the next five to six years.

Saleable potential of this project is 10-12 msf.

Out of this, SRL’s share is 7.4-8.9 msf.

Thus, as per revenue-sharing joint development agreement, SRL will get 74.1 per cent revenue share at an average realisation of Rs 5000/sq ft.

This could potentially generate nearly Rs 3700-4450 crore of revenue over the life of the project.

SRL expects to clock PAT margins in the range of 20-22 per cent for this project.

With such robust launches ahead, we expect SRL’s revenues to grow at 19.6 per cent CAGR to Rs 1,270.6 crore in FY18-20E. Robust launch pipeline ahead: SRL is looking to launch Avenue 3, 4 in H2FY19E, which would comprise residential development.

Also, it would be launching Avenue 5, 6 with commercial development to the tune of 2.6 msf in H2FY19E.

The company expects to receive commencement certificate for its commercial development – Gateway 51.

The management expects to launch this in Q3FY19E.

These new launches would further boost the sales momentum over the next few years. Sales momentum, future launches to drive profitability; maintain BUY: At the CMP, SRL is trading at valuation of 2.1x FY20E P/BV multiple.

Considering the strong cash flow visibility from its completed projects, better leverage position (net D/E: 0.17x), its affordable housing foray and quality of the land bank, SRL is currently trading at attractive valuations.

Furthermore, the growth capital raised through QIP would be used for generating stable rental portfolio and affordable housing segment.

We maintain our BUY rating on the stock with a target price of Rs 525/share (1x FY20E NAV).