Phoenix Mills - 3Q FY11: Steady performance at High Street Phoenix; JP Morgan

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Phoenix Mills
Overweight
PHOE.BO, PHNX IN
3Q FY11: Steady performance at High Street Phoenix;
tenant handovers at pipeline projects in full swing

Phoenix reported decent 3Q FY11 results (PAT of Rs238MM, up 7% Q/Q,
EBITDA margin – 73%) on the back of solid performance of its flagship asset
“High Street Phoenix” (record footfalls in Dec-Q, 92% occupancy). Further,
execution across its market city projects is in full swing (tenant handovers
underway). Phoenix’s stock price has remained firm over the last few months
despite overall sector weakness amidst macro concerns; we expect this outperformance to continue given PML’s high leasing/execution visibility and
improving retail real estate fundamentals. Maintain OW.

•  Decent 3Q FY11 results:  Phoenix reported 3Q FY11 net income of
Rs238MM, up 7% Q/Q and marginally ahead of our estimate of
Rs230MM. While revenues of Rs451MM were up 2% Q/Q primarily on
the back of higher revenue share at HSP (~8% of the revenue), margin
improvement (+100bp Q/Q) and lower finance costs (-35% Q/Q) aided the
PAT growth during the quarter. Company repaid its entire standalone debt
(Rs850MM) during Dec-Q, which led to a decline in the interest expense.
• Key operational highlights
o High Street Phoenix (HSP) witnessed a record number of
footfalls (1.5m/month) and impressive pick-up in retailer sales
over Dec-Q on the back of the strong festive season. Occupancy at
HSP remained steady at 92% (retail- ~95%; office – ~70%) with
average rentals at Rs165psf pm (stable Q/Q). The negotiations for
rent renewals with anchor tenants (~0.15msf) are currently
underway and should push up the average rentals (by 10%) at HSP
over the next 2-3 quarters, according to the company.  
o Execution across market cities is in full swing with tenant fit-out
work in progress across Pune/Kurla/Bangalore projects. While
Pune market city will be first one to become operational by Mar-11
followed by Kurla (by 1Q FY12); Bangalore seems to have been
delayed by three months (to 1Q FY12-2Q FY12). Incremental
leasing was, however, at a standstill during the quarter with the
company focusing on execution and handover of these projects
given significant pre-leases is already in place (55%-75% leased).
o Opening of Shangri-La hotel has been pushed to 2Q FY12 end due
to delays in completion of façade work.