FINANCIAL LEVERAGE OF

SUNTECK REALITY LIMITED

AUM REAL 663 Financial Management & Capital
Markets

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Contents
1. Introduction of Sunteck Reality....................................................................................................2
2 Capital Structure of Sunteck Reality..................................................................................................3
2.1 Liabilities and Equity...................................................................................................................5
2.2 Ratios...........................................................................................................................................5
2.3 Dividend Policy............................................................................................................................6
2.4 Debt equity Ratio........................................................................................................................7
3. Financial Leverage.........................................................................................................................7
3.1 Pure Play Approach.....................................................................................................................9
3.2 Financial Leverage of the Sunteck City, Goregoan...................................................................10
4. Annexures...................................................................................................................................12
5. References...................................................................................................................................12

Table of Figures

Figure 1 Sunteck Reality Projects...........................................................................................................1

Figure 2 Beta Calculation formula.........................................................................................................4

Table of Tables
Table 1 Regression Analysis table..........................................................................................................4
Table 2 Calculations for Ke....................................................................................................................5

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 1. Introduction of Sunteck Reality
Sunteck Reality Limited founded in 2000 has been a pioneer in Premium luxury and ultra- luxury
residential housing in Mumbai and Navi Mumbai. Sunteck Reality has developed premium residential
space of 4 acres in India's most promising commercial hub - Bandra Kurla Complex, Mumbai. These
high-end properties of BKC play host to the top corporate businessmen making it one of the most
prestigious and iconic projects in the country. The company has also identified places like Goregaon
& Airoli and invested to develop spaces to cater the needs of the customers. In Goregaon, Sunteck
has acquired 23 acres of land while in Airoli which is considered as the new financial hub of Navi
Mumbai has various ongoing projects.

Figure 1 Sunteck Reality Projects

Figure 2 Sunteck Reality Projects locations Source- Sunteck India

Sunteck Realty has developed a portfolio, catering to the ultra-Luxurious and Premium segment of
over 30 mn sq.ft spread across over 25 projects, 4 rented assets and pioneered in brand tie-ups with
international developers.

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2 Capital Structure of Sunteck Reality
BALANCE SHEET

Report Date Mar-19 Mar-20 difference Percentage change %

Equity Share Capital 14.03 14.04 0.01 0.07
Reserves 2819.51 2906.1 86.59 3.07
Total share holder's funds 2833.54 2920.14 86.6 3.14
Borrowings/ Debts 634.62 921.72 287.1 45.24
Other Liabilities 457.61 355.57 -102.04 -22.30
Total 3925.77 4197.43 271.66 6.92
Net Block 72.47 87.04 14.57 20.10
Investments 260.64 276 15.36 5.89
Other Assets 3592.66 3834.39 241.73 6.73
Total 3925.77 4197.43 271.66 6.92
Receivables 370.58 355.34 -15.24 -4.11
Inventory 2632.06 2720.3 88.24 3.35
Cash & Bank 147.92 166.22 18.3 12.37
No. of Equity Shares 140336639 140371879 35240 0.03
Face value 1 1
Total liabilities of the company Sunteck increased by 6.92%

PROFIT AND LOSS STATEMENT

Narration Mar-19 Mar-20 difference Percentage change %

Sales 856.79 607.83 -248.96 -29.06
Expenses 478.56 445.64 -32.92 -6.88
Operating Profit 378.23 162.19 -216.04 -57.12
Other Income 34.57 24.15 -10.42 -30.14
Depreciation 2.19 3.58 1.39 63.47
Interest 41.06 43.83 2.77 6.75
Profit before tax 369.55 138.93 -230.62 -62.41
Tax 128.43 37.81 -90.62 -70.56
Net profit 227.55 100.28 -127.27 -55.93
Earnings Per Share 15.55 6.85 -8.7 -55.95
Price to earning 29.66 30.67 1.01 3.41
Price 461.25 210.05 -251.2 -54.46
RATIOS:
Dividend Payout 9.25% 21.00% 0.1175 127.03
OPM 44.15% 26.68% -0.1747 -39.57

Sales of the company decreased by 29.06% from March 2019- 2020 and Profits before taxes
decreased by 62.41% in the same financial year.

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2.1 Liabilities and Equity
Long Term Liabilities As at 31, March, 2020 As at 31, March Difference %
2019 Change
(Rs. In Crores) (Rs. In Crores) (Rs. In Crores)
Borrowings 15,496.75 12,536.50 2,960.25 23.61%
Other financial liabilities 299.50 239.14 60.36 25.24%
Provisions 411.52 238.13 173.39 72.81%
Other Long-term Liabilities 24.57 22.9 1.67 7.29%
Total Long-term Liabilities 16,232.34 13,036.67 3,195.67 24.51%
Total long term liabilities increased by 24.51% in the year 2019- 2020

Equity As at 31, March, As at 31, March Difference % Change

2020 2019
(Rs. In Crores) (Rs. In Crores) (Rs. In Crores)
Equity Share Capital 1,403.72 1,403.37 0.35 0.02%
Other Equity 290,609.91 281,969.40 8640.51 3.06%
Non-Controlling Interest 0 9,102.70 -9102.7 -100.00%
Total Equity 18,267.31 16,333.01 1934.3 11.84%
Total equity increased by 11.84 % from 2019-2020 financial year

2.2 Ratios
Particulars As at 31, March, As at 31, Difference % change
2020 March 2019
(Rs. In Crores) (Rs. In Crores)
Total Long- term Liabilities 16232.34 13036.67 3195.67 24%
Short Term Liabilities 95496.7 87065.32 8431.38 9.68%
Total Equity 18267.31 16333.01 1934.3 11.84%
Total Assets 419,742.67 392,698.36 27044.31 6.88%
EBIT 18,241.85 41,038.36 22796.51 -55.5%
EBT 13,893.25 36,955.41 23062.16 -62.4%
finance costs 4,348.60 4,082.95 265.65 6.5%

Total Assets have increased by 6.88% and finance costs has increased by 6.5% in the financial year
2019-2020

EBIT has decreased by 55.5% and EBT has decreased by 62.4% in the same year

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2.3 Dividend Policy
2020 2019 2018 2017
DPS 1.5 1.5 1.5 3
EPS 6.85 15.55 14.64 16.20
Dividend Payout 22% 10% 10% 19%
Ratio

Earning per share and Dividend per share

18 16.20
15.55
16 14.64
14
12
10
8 6.85
6
4 3
1.5 1.5 1.5
2
0
2016.5 2017 2017.5 2018 2018.5 2019 2019.5 2020 2020.5

Dividend per share Linear (Dividend per share)

Earning per share Linear (Earning per share)

Dividend Payout Ratio

25%

20%

15%

10%

5%

0%
2016.5 2017 2017.5 2018 2018.5 2019 2019.5 2020 2020.5

 The company has constant dividend/share ie 1.5 from 2017-2020

 Profits are dropping constantly from 2017-2020

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2.4 Debt equity Ratio
Sunteck Reality Limited has a low Net Debt/Equity Ratio and the fastest construction producing
company in Mumbai.

FY 2020 FY 2019
Debt/ Equity 0.89 0.80
Debt/ capital Employed 0.05 0.04
Financial Leverage 1.3 1.1

Debt/ equity ratio has increased from 0.8 to 0.89

Debt/Capital Employed has increased from 0.04 to 0.05

Financial Leverage has increased from 1.1 to 1.3 in the year 2019-2020

2.2 Market Capitalization

Sunteck Reality Prices as on 10th April 2021

Price per share as of 10th April 2021= Rs 287.70

No of equity shares as on 10th April 2021=140371879

Market Capitalization =Value of Equity at its Market Price x No of equity shares

=287.7*140371879

=40384989588

3. Financial Leverage
The data for 90 days for NSE Nifty Fifty and NSE Sunteck Reality Limited is collected from Yahoo
Finance from 18th November 2020 to 1st April 2021

By slope method, Beta was calculated as 1.040743

By Covariance/Variance formula, Beta was calculated as 1.040743

Beta is more than 1, that means volatility is 1.040743 and has higher risk

Adjusted Beta= (1-alpha)*Beta+ alpha*1

=(1-0.33)* 1.040743 + (0.33*1) = 1.027298

Figure 3 Beta Calculation formula

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REGRESSION DATA ANALYSIS

Table 1 Regression Analysis table

Table 2 Calculations for Ke

Slope Method 1.04072 Beta

Covariance/Variance 1.04072 Beta
Regression 1.04072 Beta

Parent company
Adjusted Beta 1.02728
Risk free Return 3.28%
Rm bar 0.001630
Rm 9.1%
KE 0.09337
KE in % 9.337%
Beta by covariance/ variance (population) is 1.04072
By slope method, Beta is 1.04072

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According to the formula, Adjusted beta= (1-a)*b + a*1, where in a=0.33
Therefore, adjusted beta =1.02
Rm(bar) average = 0.0016
Market Risk(Rm) = 9.1% according to NSE
Rm =((1+ Rm bar )^252)-1
Also, Rf also known as risk fee rate for 91 day treasury bills- March 2021=
3.28%
We get Ke= 9.337%
The value of beta that we obtain determines fluctuations in the market. Higher
beta means that there is high instability. The cost of equity or Ke is dependent
on the instability, higher instability means higher cost of equity.

3.1 Pure Play Approach

Parent company
Long term liabilities 16,232.34
Finance cost 4,348.60
Kd 0.267897296
Tax 25.00%
Kd after tax 0.200922972
Ke (without adjustment) 9.30%
Ke of Sunteck Reality without adjustment is 9.3%

Kd that is obtained afer tax is 0.2 or 20%

Parent Company Sunteck reality

Beta levered (Bl) 1.041
Debt 16,232.34
Equity 18267.31
Total Capital Employed 34499.65
Tax 25.00%
1-T 75.00%
D*(1-T) 12174.255
E/(D(1-T)+E) 0.600077887
Beta Unlevered (Bu) 0.62468108
Unlevered Beta of Sunteck Reality is 62.46%

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Debt 16,232.34
Equity 18267.31
Total 34499.65
We 0.529492618
Wd 0.470507382
WACC of parent 0.143778555
company Sunteck
WACC in % 14.38%
WACC of Parent company Sunteck is 14.38%

Where, WACC = Ke*We +Wd*Kd= 14.38%, this cost of capital identifies the return that is needed by
the company and an IRR higher than 14.38% will be required to obtain lower risks in investment.

3.2 Financial Leverage of the Sunteck City, Goregoan

Project cost of 150 crores

Figure 3 Sunteck City, Goregaon Location source- Sunteck India

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 Goregaon West - Sunteck City Avenue 5 and 6 has a total development potential of 2.6 mn sq
ft.

The projects will have allied retail and commercial development on the 23 acre land

Once the commercial and retail assets stabilize, steady annuity income of INR 5-6 bn is
expected from these assets.

The total cost outflow expected to be incurred in this projects is INR 150-160 crores.

Figure 4 Sunteck City, Goregaon description

Project Sunteck city

Goregaon 150 Crore
project cost
Beta Unlevered (Bu) 0.62468108
long term Debt 900000000
Equity 600000000
Total 1500000000
D/E Ratio 1.5
Tax 25%
Bu (Re-levered Beta 1.327447296
of project)
Project cost is taken as 150 crores, debt =60% of total cost = 90 crores and equity is taken as 40% as
60crores

Beta Unlevered for Sunteck Reality is 0.624

Re levered Beta of the project Sunteck City Goregaon is 1.327, Beta is releveled as it indicates the
impact of equity- debt ratios of Sunteck company

WACC of the Project Sunteck city

Goregaon
Rf 3.28%
New Beta of the 1.327447296
project
Rm 9.10%
Ke of the project 0.110057433
Kd after tax 0.200922972
We 0.4
Wd 0.6
WACC 0.164576756
16.46%
Rf= 3.28%, New beta of the project is 1.32744

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Rm= 9.1%, Kd after tax = 0.2009

Cost of equity Ke of the project = Rf +beta(beta of Sunteck City)*(Rm-Rf) = 0.11

We = 0.4 and Wd is 0.6

WACC of Sunteck City Goregaon is 16.46%

While comparing cost of capital of the project Sunteck city (16.46%) and that of Sunteck Reality
limited (14.38%), the project has a higher WACC, hence if we invest in the project Sunteck city at
Goregaon there will be higher risk than invest in Sunteck Reality.

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 4. Annexures
Excel file

fmcm maria
ssign.xlsx

5. References

https://www.sunteckindia.com/aboutus.php

https://economictimes.indiatimes.com/sunteck-realty-ltd/stocks/companyid-3296.cms

https://www.screener.in/company/SUNTECK/consolidated/

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