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Results in line with expectations
The Phoenix Mills’ (PML) standalone Q3FY11 revenue of INR 451 mn and PAT of
INR 238 mn were in line with our revenue and PAT estimates of INR 480 mn and
INR 241 mn, respectively. Reported EBITDA margin at ~72% was flat Q-o-Q.
High Street Phoenix (HSP) is earning average rent of ~INR 160/sf/month across
the retail/commercial space as of December 2010. It saw footfalls of over 1.5 mn
in December 2010 and new stores to have opened during the quarter are Veda,
Armani, Chanel, Crew Republica, and Levi’s Signature.
Visibility on Market city projects improving
Over 130 retailers have commenced fit-outs at the Pune Market city and the mall
is expected to be operational by March 2011, in line with our expectations. Also,
premises at the Bengaluru (E) and Kurla, Mumbai Market cities have been
handed over for fit-outs to retailers with PML expecting the malls to be
operational by Q1FY12 (our assumption is Q4FY12 for Bengaluru (E) and Q2FY12
for Kurla). Incremental leasing across Market cities during the quarter was
minimal as PML is focusing on completion of projects and plans to lease out the
balance portions on projects nearing completion.
Debt-free on standalone basis
During the quarter, PML has paid off its standalone debt (INR 850 mn as of
Q2FY11) making it a debt-free company on standalone basis. Consolidated debt
(ex-debt in associates) currently stands at INR 7.05 bn (0.4x debt/equity). Also,
debt for Shangri-La Hotel has been refinanced in Q3FY11 and balance capex of
~INR 3 bn remains to be spent with Phase I likely to be operational by Q3FY12.
Outlook and valuations: On track; maintain ‘BUY’
Our FY12E GAV of INR 294/share includes INR 231 for HSP/Market City projects,
INR 29 for 53% economic interest in HSP Shangri-La Hotel, and INR 34 for other
investments. Adjusting for FY12E net debt of INR 33/share (ex-Shangri-La CDs),
we arrive at FY12E NAV of INR 261/share, which implies 23% discount to NAV at
CMP of INR 204/share. We maintain ‘BUY’ recommendation on the stock and
rate it ‘Sector Performer’ on relative return basis.
Company Description
Phoenix Mills (PML) began operations as a textile manufacturing company in 1905, on
17.3 acres of land in Lower Parel, Mumbai. In 1987, the company entered Mumbai’s real
estate market through development of High Street Phoenix (HSP) on the textile mill
property in Lower Parel (involving development of ~3 msf of retail, entertainment,
commercial and residential space).
Besides HSP, the company is developing five market cities in Kurla (Mumbai), Bengaluru
(two locations), Chennai and Pune. Moreover, the company has ventured into hospitality
business through its subsidiary - Phoenix Hospitality - that is currently developing five
hotels across five cities. In 2008, PML acquired 40% stake (currently 33% pre-IPO) in
Entertainment World Developers (EWDPL), operating under Treasure Island Brand in tier
II cities. PML has also acquired 73% stake in Big Apple Real Estate (BARE) that develops
malls under the brand name ‘Phoenix United’ across North India.
Investment Theme
Quality retail/hospitality asset play on Indian consumption story
The Phoenix Mills (PML), with its successful High Street Phoenix (HSP) property in
Mumbai and upcoming Market City projects in Tier I cities across India, offers a unique
play on the Indian consumption story. Moreover, it enjoys strong track record of project
execution and established tenant relationships. With these, it is poised to benefit from
demand revival for retail space, driven by rise in discretionary spending and recovery in
retailers’ expansion plans.
High Street Phoenix, a cash cow
PML’s HSP property at Lower Parel, Mumbai offers a mix of retail, office and hotel space
at a single location and generated ~INR 0.8 bn of rentals across ~0.9 msf in FY10 (exservice
charges). With ~0.15 msf of anchor space up for renegotiation in CY11 and
Palladium luxury mall (~0.3 msf) to earn full year rentals from FY11 we expect 34%
CAGR rental growth over FY10-13E to ~INR 1.85 bn).
Rental income to rise from INR 0.8 bn to INR 3.5 bn in FY13E
With ~4.4 msf space of Market City projects (PML’s share: 1.64 msf) becoming
operational by FY12, we estimate PML’s rental income to grow from INR 0.8 bn in FY10
to INR 3.5 bn in FY13E.
Key Risks
Slower-than-expected recovery in retail leasing
PML’s business model is concentrated in the retail segment that hasn’t recovered much
post the economic downturn, and where oversupply in specific micro-markets continues
to be a concern for next two-three years. Hence, a slower-than-expected pick-up in retail
leasing activity may impact PML’s expansion plans.
Relationship with strategic investors a key monitorable
Apart from the fully-owned HSP, PML is carrying out its Market City, BARE and EWDL
projects in collaboration with JV partners. With PML’s business model being capitalintensive,
project funding assumes significance. In the event of any strategic partner
looking to exit any of the projects, liquidity may be impacted and this, in turn, may
impact execution and poses to a risk to our NAV estimates.
Cap rate expansion
In an environment of rising interest rates, there is a possibility of expansion in cap rates
by 100-200bps from current levels of 11-12% for retail/office assets.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Results in line with expectations
The Phoenix Mills’ (PML) standalone Q3FY11 revenue of INR 451 mn and PAT of
INR 238 mn were in line with our revenue and PAT estimates of INR 480 mn and
INR 241 mn, respectively. Reported EBITDA margin at ~72% was flat Q-o-Q.
High Street Phoenix (HSP) is earning average rent of ~INR 160/sf/month across
the retail/commercial space as of December 2010. It saw footfalls of over 1.5 mn
in December 2010 and new stores to have opened during the quarter are Veda,
Armani, Chanel, Crew Republica, and Levi’s Signature.
Visibility on Market city projects improving
Over 130 retailers have commenced fit-outs at the Pune Market city and the mall
is expected to be operational by March 2011, in line with our expectations. Also,
premises at the Bengaluru (E) and Kurla, Mumbai Market cities have been
handed over for fit-outs to retailers with PML expecting the malls to be
operational by Q1FY12 (our assumption is Q4FY12 for Bengaluru (E) and Q2FY12
for Kurla). Incremental leasing across Market cities during the quarter was
minimal as PML is focusing on completion of projects and plans to lease out the
balance portions on projects nearing completion.
Debt-free on standalone basis
During the quarter, PML has paid off its standalone debt (INR 850 mn as of
Q2FY11) making it a debt-free company on standalone basis. Consolidated debt
(ex-debt in associates) currently stands at INR 7.05 bn (0.4x debt/equity). Also,
debt for Shangri-La Hotel has been refinanced in Q3FY11 and balance capex of
~INR 3 bn remains to be spent with Phase I likely to be operational by Q3FY12.
Outlook and valuations: On track; maintain ‘BUY’
Our FY12E GAV of INR 294/share includes INR 231 for HSP/Market City projects,
INR 29 for 53% economic interest in HSP Shangri-La Hotel, and INR 34 for other
investments. Adjusting for FY12E net debt of INR 33/share (ex-Shangri-La CDs),
we arrive at FY12E NAV of INR 261/share, which implies 23% discount to NAV at
CMP of INR 204/share. We maintain ‘BUY’ recommendation on the stock and
rate it ‘Sector Performer’ on relative return basis.
Company Description
Phoenix Mills (PML) began operations as a textile manufacturing company in 1905, on
17.3 acres of land in Lower Parel, Mumbai. In 1987, the company entered Mumbai’s real
estate market through development of High Street Phoenix (HSP) on the textile mill
property in Lower Parel (involving development of ~3 msf of retail, entertainment,
commercial and residential space).
Besides HSP, the company is developing five market cities in Kurla (Mumbai), Bengaluru
(two locations), Chennai and Pune. Moreover, the company has ventured into hospitality
business through its subsidiary - Phoenix Hospitality - that is currently developing five
hotels across five cities. In 2008, PML acquired 40% stake (currently 33% pre-IPO) in
Entertainment World Developers (EWDPL), operating under Treasure Island Brand in tier
II cities. PML has also acquired 73% stake in Big Apple Real Estate (BARE) that develops
malls under the brand name ‘Phoenix United’ across North India.
Investment Theme
Quality retail/hospitality asset play on Indian consumption story
The Phoenix Mills (PML), with its successful High Street Phoenix (HSP) property in
Mumbai and upcoming Market City projects in Tier I cities across India, offers a unique
play on the Indian consumption story. Moreover, it enjoys strong track record of project
execution and established tenant relationships. With these, it is poised to benefit from
demand revival for retail space, driven by rise in discretionary spending and recovery in
retailers’ expansion plans.
High Street Phoenix, a cash cow
PML’s HSP property at Lower Parel, Mumbai offers a mix of retail, office and hotel space
at a single location and generated ~INR 0.8 bn of rentals across ~0.9 msf in FY10 (exservice
charges). With ~0.15 msf of anchor space up for renegotiation in CY11 and
Palladium luxury mall (~0.3 msf) to earn full year rentals from FY11 we expect 34%
CAGR rental growth over FY10-13E to ~INR 1.85 bn).
Rental income to rise from INR 0.8 bn to INR 3.5 bn in FY13E
With ~4.4 msf space of Market City projects (PML’s share: 1.64 msf) becoming
operational by FY12, we estimate PML’s rental income to grow from INR 0.8 bn in FY10
to INR 3.5 bn in FY13E.
Key Risks
Slower-than-expected recovery in retail leasing
PML’s business model is concentrated in the retail segment that hasn’t recovered much
post the economic downturn, and where oversupply in specific micro-markets continues
to be a concern for next two-three years. Hence, a slower-than-expected pick-up in retail
leasing activity may impact PML’s expansion plans.
Relationship with strategic investors a key monitorable
Apart from the fully-owned HSP, PML is carrying out its Market City, BARE and EWDL
projects in collaboration with JV partners. With PML’s business model being capitalintensive,
project funding assumes significance. In the event of any strategic partner
looking to exit any of the projects, liquidity may be impacted and this, in turn, may
impact execution and poses to a risk to our NAV estimates.
Cap rate expansion
In an environment of rising interest rates, there is a possibility of expansion in cap rates
by 100-200bps from current levels of 11-12% for retail/office assets.
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