Sunteck’s Upgrad leasing deal to aid free cash flows

Upgrad will pay starting rentals of close to ₹300 per sq ft. per month on carpet area basis, Sunteck said in a release on Wednesday. So, the total revenue generated from the project will amount close to ₹2,000 crore over the entire lease tenure.

Following this, shares of the company rose around 4% on the NSE in Thursday’s early trade. And this reaction is well understood given that Sunteck has a 55% area share in this commercial project, so this development bodes well for its free cash flows position.

“We expect annual rentals of around Rs3 crore, of which Sunteck’s share would be around Rs24 crore. Assuming a cap rate of 8%, this project has a potential enterprise value of nearly Rs250 crore for Sunteck, which is around 10% higher than our estimate,” said analysts at Nuvama Research. “Against an all-inclusive cost of Rs110–120 crore incurred by the company, this transaction is significantly value-accretive,” added the Nuvama report dated 1 March.

Note that Sunteck has another commerical project, Sunteck Icon, with around 0.2msf built-up area near BKC and 56.5% area share.

“With this project also nearing completion, we expect the company to try and complete leasing there too. These two commercial projects shall provide a steady annuity stream for the company,” added the Nuvama report.

Meanwhile, on the residential side of the business, Q3FY23 pre-sales were robust at Rs396 crore. For FY23, it’s management has reiterated pre-sales guidance of Rs1,800 crore. Further, Sunteck will continue to aggressively scout for business development opportunities going ahead. By FY24, management targets to launch 7.5msf of projects that will support the 25-30% presales growth targets. So, the pace of launches will be a key monitorable for investors in this stock, said analysts.