Suraj Estate shares soar 10% to hit new record high, zoom 94% in a month; more rally ahead?

Continuing their winning streak for the fifth consecutive trading session on Thursday, shares of Suraj Estate Developers rose by another 9.6% in today's session to reach a fresh all-time high of ₹630 apiece. Since June 4, the stock has maintained a steady upward trend, marking a remarkable rally of 94% to date.

Listed on Dalal Street in December last year, the company's shares initially had a subdued performance but gained momentum starting in April, sustaining this trajectory since then. Currently, the stock trades 72% higher than its IPO price of ₹360 per share.

Despite the recent strong performance, domestic brokerage firm Nuvama Professional Clients Group believes the stock has significant upside potential, citing the company's growth trajectory. It initiated coverage on the stock with a 'buy' rating on Wednesday, setting a target price of ₹757, which indicates an upside of 32% from the stock's previous closing price.

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The brokerage valued Suraj Estate at a 40% premium to its FY26E NAV considering its land reserves and ability to aggressively add new projects in its existing micro-market given its brand value and improved balance sheet.

The company is a prominent player in South Central Mumbai (SCM), known for its presence in key micro-markets like Dadar, Prabhadevi, Mahim, Matunga, and Parel. With a track record of delivering over 42 projects totaling more than 1 million sq. ft. of saleable carpet area, the company operates in both residential and commercial real estate segments.

Favourable dynamics

The brokerage holds an optimistic outlook on the company's growth trajectory owing to its expertise in the redevelopment of tenanted properties, which is key to its success in SCM given the dearth of vacant land parcels, superior product positioning and quality offerings, a healthy launch pipeline, steady growth in sales velocity, industry-leading EBITDA margin, strong operating cash flows, improving cash flows, and balance sheet strength.

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"Over FY25–28, we see it launching 0.8 million sq. ft., with a GDV of ₹4,652 crore, across 17 residential projects. Aided by the strong launch pipeline, limited fresh supply of branded projects in SCM, its speciality and leadership in the redevelopment of tenanted properties into quality high rises, and attractive product positioning, we expect a higher pre-sales run-rate ahead. Over FY24–27, we see a 49.2% CAGR in pre-sales to ₹1,605 crore," said the brokerage.

The upcoming projects have fully paid land and prime locations, positioning Suraj Estate to target ₹47,000 per sq. ft. of carpet area. The brokerage estimates construction costs conservatively at 40–45% of sales value, projecting an EBITDA margin of 52–54% for FY25–27.

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On the commercial front, Suraj Estate has ongoing projects spanning 0.04 million sq. ft. with a gross development value (GDV) of ₹197 crore, of which ₹114 crore is outstanding. These projects are slated for completion in FY25.

Additionally, a new project of 0.11 million sq. ft. (estimated GDV: ₹549 crore) is scheduled for delivery in FY26, with construction yet to commence. The brokerage anticipates revenue/EBITDA margins of approximately ₹746 crore/55% for FY25–26.

Substantial land holdings

With a robust land bank supporting launches for the next three years, Suraj Estate plans minimal investments in business development. It currently holds land parcels spanning 10,360 sq. metres, awaiting development plans, according to the brokerage.

Construction costs will be covered by project collections, and the brokerage foresees no significant increase in debt. It anticipates net debt to drop from ₹315 crore in FY24 to ₹145 crore by FY27.

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Fueled by strong launch activities, robust pre-sales growth, and the delivery of commercial properties, Nuvama expects collections and operating cash flows to achieve a CAGR of 67.9% and 149.4%, respectively, from FY24 to FY27.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.