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Sumitomo Realty: Purchase of Development Site in Mumbai Greatly Expands Future Investment in India

Illustration of a black two story house outlined in blue and part of a black two story house outlined in yellow in front of a black background depicting the real estate industry

We maintain our fair value estimate of JPY 4,000 for Sumitomo Realty 8830, equivalent to 0.49 times the net asset value and 7% above the current share price, after the Japanese developer announced the acquisition of a large piece of land for a mixed-use development in the Worli district of Mumbai. This is its third investment in the Indian city since 2019. This acquisition is significant because it is even larger than Sumitomo Realty’s first two projects in Mumbai, BKC1 announced in 2019 and BKC2 announced in 2022, in which the company is investing JPY 200 billion and which will add 260,000 square meters of gross floor area by March 2028. This project will add more than 1 million square meters, with completion likely in the mid-2030s per our estimation and has a total investment amount of JPY 500 billion. Given that office rents in Mumbai are currently similar to office rents in central Tokyo, we estimate that BKC1 and BKC2 will together contribute around 3% of Sumitomo Realty’s total operating profit by March 2028. The new Worli project, several times larger than BKC1 and BKC2 combined, could therefore bring India’s total contribution to Sumitomo Realty profits a decade from now to almost 10%, per our estimation.

Compared with investment in offices in Tokyo, the development risks for Sumitomo Realty are larger in India, but in our view this is offset by greater future growth potential. The Worli site may be able to avoid some of the risks commonly found in land development in India as it has been owned by the related conglomerate and family of the seller Bombay Dyeing for about 150 years. Unlike acquisitions of other plots of land in India, which can face long and complicated lawsuits from parties purporting to have a title to the land, such risks seem lower in this case. The plot should also benefit from a favorable location with five-star hotels in the immediate vicinity and Metro Line 3 stations Worli and Siddhivinayak scheduled to open in 2024.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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Michael Makdad

Senior Equity Analyst
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Michael Makdad is a senior equity analyst for Ibbotson Associates Japan, Inc., a wholly owned subsidiary of Morningstar, Inc. He covers financial and real estate firms. Makdad is a Team Leader for the Japan team.

Before joining Morningstar in 2018, Makdad worked in equity and credit research in Tokyo and Hong Kong since 2005 for Lehman Brothers, Nomura, Moody’s, and Haitong Securities. He worked as a sector analyst and in roles where he supervised the research product content and presentation for other analysts across the Asia region.

Makdad holds bachelor’s and master’s degrees in business administration from Washington University in St. Louis. He also holds the Chartered Financial Analyst® designation.

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