We retain our BUY rating on Signature Global India (Signature) with an unchanged TP of INR 1,707, valuing the company at 9x FY24–26E average embedded EBITDA on sales bookings. Signature delivered 63% sales booking CAGR over FY21– 24, largely through affordable/mid-income housing projects. It has now forayed into premium group-housing projects in prime areas of Gurugram. We envisage sector-71’s – christened ‘Titanium’ – phase-1 launch to happen in Jun/Jul’24 at a realisation of >INR 15,000/psf across 2msf with potential GDV of >INR 30bn.
Given its strong launch pipeline with a FY24–27E GDV of >INR 400bn, we estimate that Signature may clock 19% sales booking CAGR over FY24 – 27 with FY25–27 sales booking of INR 100–120bn annually at average realisations of over INR 13,000/psf-plus.
Strong portfolio of ongoing and upcoming projects
As of Mar’24, Signature’s portfolio of saleable area across ongoing and forthcoming projects was recorded at a strong 48.6msf. All its upcoming projects, with an estimated cumulative GDV of over INR 400bn, are slated to be launched between FY24–27E. We expect the share of mid-income housing projects to range between 65–70% over this time – at realisations in excess of INR 10,000/psf. In early Mar’24, Signature announced that it had clocked over INR 36bn of sales bookings from the successful launch of its first premium residential project in Gurugram with an average ticket size of INR 35mn/unit and at an average realisation of >INR 13,000/psf, which is testimony to its brand strength and ability to monetise premium group housing projects.
Robust launch pipeline for FY25
Signature intends to launch new projects worth ~INR 160bn in FY25, including sector 71, Gurugram and Sohna Elevated Corridor. The company has guided for FY25 sales booking of INR 100bn at an estimated embedded EBITDA margin of 35% vs. INR 73bn clocked in FY24. Of this, we estimate that phase- 1 launch of its sector 71 project, christened ‘Titanium’, may happen in Jun/Jul’24 at a realisation of over INR 15,000/psf across 2msf with a potential booking GDV of >INR 30bn and average unit ticket size ranging INR 40– 60mn. A key monitorable will be the company’s ability to monetise its premium land parcels across Gurugram to drive growth over the medium term.
We estimate 19% sales booking CAGR over FY24–27
Signature has historically derived a majority of its sales bookings from AH and MH projects. With the successful launch of its first premium residential project in Gurugram, which has clocked over INR 36bn of sales bookings, the company has delivered 63% sales booking CAGR over FY21–24.
The company has a strong launch pipeline of projects with a cumulative GDV of over INR 400bn over FY24–27E. With that, we estimate that Signature may clock 19% sales booking CAGR over FY24–27 with sales booking ranging between INR 100–120bn annually over FY25–27 at average realisations of over INR 13,000/psf- plus.
Valuation
Traditionally, listed developers have historically been valued on a DCF-based NAV across the different business segments and residential/office/retail/hotels/others) along with land bank. However, the current buoyancy in the sector observed post covid, between FY22–24, has led to companies aggressively chasing growth while keeping balance sheets lean and using internal accruals to fund expansion. This has resulted companies now also getting a reinvestment multiple of 30–50% premium to NAV along with the 100% market value of land.
Signature’s business model is unique. While the company does not act as a land aggregator, it focuses on launching and completing projects within four–five years, reinvests the surplus for growth and keeps a similar land bank reserve of four–five years at any point of time. Hence, we are of the view that the company should be valued on a going concern basis, wherein the embedded EBITDA multiple of ~30% is sustainable over the medium term.
We retain our BUY rating with an unchanged target price of INR 1,707 based on 9x FY24E–26E average embedded EBITDA of INR 27.9bn at an EBITDA margin of 30%. Our multiple of 9x is at a 40% discount to DLF, which is its closest peer – considering that Signature would need to reinvest internal accruals for land bank replenishment while DLF has the luxury of a historical low-cost land in Gurugram.
On a DCF-basis, we estimate Signature’s NAV at INR 130bn, or INR 924/share, for its current portfolio of ongoing and forthcoming projects
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