MOFSL initiates coverage on Gurugram-headquartered realty developer; Rs 2,000 target implies 38% upside

Motilal Oswal Financial Services Ltd (MOFSL) has initiated coverage on Gurugram-headquartered real estate developer Signature Global (SIGNATURE) with a 'buy' rating and a target price of Rs 2,000. The brokerage's target price implies an upside of 37.7 per cent from Monday's closing price. 

On Tuesday, the stock rose by as much as Rs 60.1 - or 4.1 per cent - to Rs 1,512.7 apiece on BSE. 

Here are key things to know about this development: 

Pre-sales momentum

Motilal Oswal Financial Services expects the realty developer to sustain its growth momentum to deliver a CAGR of 35 per cent in pre-sales over the FY24-27E period, to
Rs 17,800 crore.

Through its standardised offerings and quick turnaround strategy, Signature Global registered a 42 per cent CAGR in pre-sales from FY21 to FY23, and its agility in adapting to changing market preferences has enabled it to foray into the premium segment, according to the brokerage. 

Margin better than peers

The Signature Global management’s disciplined land acquisition strategy has enabled it to curtail costs and maintain margins of more than 35 per cent, which is better than the company's peers, according to the brokerage. 

Exposure to strategic locations

The brokerage has highlighted the property developer's focus on the booming Gurugram real estate market. Right from the start, the management has set its sights on the fast-growing Gurugram and Sohna markets in Haryana, according to the brokerage.

"In CY23, Gurugram’s residential demand surpassed its CY09 highs and reported absorption of over 21,000 units," analysts at MOFSL wrote in the research report. 

The company is shifting its focus to the premium segment with a strong project pipeline, having launched its "first premium project in 4QFY24, which was sold out within 48 hours with 5.4x subscription", they added.

Strong cash flows

In FY24, SIGNATURE generated operating cash flow (OCF) to the tune of Rs 900 crore, MOFSL highlighted.

In the current financial year, Signature Global expects the cash flow to increase to Rs 2,200 crore, out of which, it plans to spend Rs 1,500 crore on acquiring land and the rest on reducing debt. 

Valuation 

MOFSL finds Signature Global shares more attractively priced than its peers. 

At the current market price, Signature Global shares trade at an EV-to-EBITDA multiple of five times the pre-sales estimates for FY26, according to MOFSL.

"Comparable peers are trading above 8-10x EV/EBITDA, further confirming the discounted valuation," said the brokerage in its report. 

Strong track record 

"With a solid track record of execution in just one decade of operations since commencing operations in 2014, SIGNATURE has focused on the underserved segment of affordable and mid-income housing in Gurugram through the state government’s policy. Development through government initiatives has allowed the company to improve its cost economics and gain exposure to a wider customer base," noted the brokerage.

"As of March 2024, the company has delivered 6msf and expects to deliver 16msf by FY26, within just one decade of operations, whereas some of its peers took more than a decade to reach this scale," it added. 

Key risks

The brokerage has listed three main risks in its views:

• High concentration in Gurugram
• Inability to replenish its project pipeline
• Demand slowdown  

What does Signature Global do?

Having commenced its operations in 2014, the company has become a major real estate developer in the Delhi-NCR market. It began its journey in the affordable and low- to mid-income housing segment by leveraging the state government’s housing policies.

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