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Phoenix Mills Ltd
Bottomline beats estimates; several growth drivers ahead
Phoenix Mills (PHNX) reported a 10% QoQ increase in its Q2FY11 sales to
Rs 443mn. This growth was largely driven by its luxury mall Palladium that
contributed 41% of the quarter’s revenue. The company’s EBITDA margin
remained flat QoQ at 72%. Blended rentals (including Palladium) for High
Street Phoenix (HSP) were slightly higher than in Q1FY11. We see the following
near-term triggers for the stock: 1) Commencement of three Market City
Projects in FY11. 2) Starting up of the Shangri-La Hotel in Q1FY12. 3) An
increase in rental income, with Palladium now fully operational and rentals on
0.15msf in HSP coming up for renewal during Q3 and Q4FY11. We maintain
our BUY rating on the stock with target price of Rs 300 after ascribing a 20%
discount to NAV.
Palladium drives Q2FY11 revenues: Income from operations increased by 68%
YoY and 10% QoQ to Rs 443mn. Palladium contributed ~41% of the quarter’s
revenue. Incremental revenues were driven by the full contribution of ZARA,
Landmark, Gucci, Boss, and Burberry outlets (as against a limited period
contribution last quarter) and opening of new stores like Fifa and Etro. Palladium
is now fully operational except for some space on the ground floor.
Improvement in blended rentals buoys PAT: PHNX’s average rentals for HSP
increased to Rs 166psf-170psf in Q2FY11, marginally higher than the last
quarter. PAT increased by 21.5% QoQ to Rs 221mn on account of a 16% drop
in interest costs as the company paid-off part of its outstanding loans.
Three Market City projects to be operational in FY11: Market City projects at
Bangaluru and Pune are in final stages and would generate rentals for their
respective SPVs from Q4FY11 onwards; the Market City project at Kurla
(Mumbai) would also start contributing from March ’11 onwards. Leasing status
has improved for Bangaluru and Chennai Market City projects and would
continue to improve before these projects become operational (Fig 3). PHNX has
increased its stake in the Bangaluru project (to 32.7% from 28.1% earlier) and is
likely to raise its stake in the Pune project as well (to 58.5% from 50% earlier) —
both value-accretive moves from a long-term perspective.
Maintain BUY with target price of Rs 300: We maintain a BUY on the stock with
a target price to Rs 300 after ascribing a 20% discount to NAV. Increasing the
stakes in Bangaluru and Pune Market city projects will further enhance its value
in the long term.
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