Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Phoenix Mills (PHOE.BO; Sell): Year of consolidation
Investment view
We initiate on Phoenix Mills (PML) with a Sell rating. We believe that
CY2011 is the year of consolidation for the company with leasing and
completion risks.
Market cities ex HSP, Mumbai (31% of NAV). These ‘market cities’
will likely face delays especially in an environment where tight liquidity
will affect expansion plans of retailers. These four market cities
comprise 4.3 mn sqft with attributable area of 1.4 mn sqft. The four
market cities are likely to commence operations in CY2011, but stable
operations are likely only by mid-CY2012.
Hotel business (14% of NAV). This largely comprises upcoming
Shangri-La hotel in South Mumbai. This has faced some delay and
stable operations are likely from early-CY12E, in our view. Other hotels
such as in Kurla and Pune are in early stages of construction (Exhibit 78).
HSP, Mumbai (43% of NAV). Our cumulative value for this mall is
Rs17.7 bn or Rs122/share. Around 20% comprises Phase-IV, for which
plans have not yet been finalized.
Entry into residential business. PML has announced its intention to
launch residential projects in Bangalore and Chennai. Total cumulative
area of residential business is 3.1 mn sqft to be developed over next five
years.
Exit structures. Each SPV has diverse shareholding with mix of private
equity and HNI shareholders. As the projects get completed, new
structures will need to emerge to facilitate their exit. Changes in capital
structure of SPVs may alter attributable value to PML, in our view.
Adequately funded. We would highlight that various SPVs are
adequately funded with land being purchased through equity and have
long-term debt for construction. Phoenix raised Rs13 bn in equity in
CY2007 and this has helped it to remain debt-free at a standalone level.
Valuation
Phoenix has been among the best performing real estate stocks giving
returns of -11% vs -46% for BSE real estate index since January 2010.
Our target price of Rs214 is based on 20% discount to our FY12E
based NAV of Rs267. Around 65% of this NAV faces leasing and
completion risk and more clarity will start emerging from end-CY11E,
in our view.
On a standalone basis, PML trades at FY12E P/B of 1.6X vs sector
average of 1.4X.
Key risks to our thesis
Higher-than-expected leasing rentals.
Higher FSI approval at HSP, Mumbai.
Lower post-tax cap rate than our assumption of 10%.
Significant outperformance constrains relative valuations
PML has outperformed real estate index by 34% since January 2010 (see Exhibit 89). Since
early 2007, the stock performance was in line with the broader index, but since Jan 2010
there has been a significant divergence. Our target price of Rs214 is based on 20% discount
(see Exhibit 14) to our FY12E based RNAV of Rs267 on account of leasing and completion
risks
CY2011 will likely be year of consolidation
We discuss various revenue drivers:
High Street Phoenix, Mumbai (HSP). This comprises 1 mn sqft of operational retail real
estate in Mumbai. We expect revenue growth of 10% in FY2012E driven by full occupancy.
Rental renegotiations are going to drive 9%-10% revenue growth in FY2013E, in our view.
Other market cities. Four more ‘market cities’ will become operational in CY2011 with
cumulative area of 4.3 mn sqft. We expect FY2013E is to be the first full year of operations
with cumulative revenues of Rs4.4 bn and Rs1.6 bn attributable to Phoenix Mills. We need
to closely monitor progress on leasing and operations of these market cities. We assume
monthly rentals per sqft of Rs85 for Chennai, Rs70 for Pune, Rs60 for Bangalore and Rs95
for Kurla.
Residential/Commercial revenues. Various SPVs hold 3.1 mn sqft of residential projects
and 1.7 mn sqft of commercial projects. We model selling prices of Rs5,000/sqft for
Bangalore and Rs4,500/sqft for Chennai.
Phoenix Mills is adequately funded
We expect Phoenix Mills to have FY2011E net cash of Rs0.8 bn. PML has made cumulative
investments of Rs7.5 bn into various entities developing retail-led destinations. PML is
adequately capitalized since it raised Rs13 bn in two tranches in CY2007, which has also
been partly utilized for HSP, Mumbai. In addition, PML owns stakes varying from 20%-70%
in various SPVs with balance owned by private equity investors/HNIs.
Establishing presence across cities
PML along with its SPVs intends to be among India’s largest owner of retail assets. It is
executing project under three key segments:
Market cities. These are large-scale retail-led destinations comprising large mall, office,
complex, 5-star hotel and premium residences in select cases.
Entertainment World Developers Limited (EWDL). EWDL has three operational malls
with two in Indore and one in Nanded. EWDL is developing approximately 23 mn sqft
through 18 projects in 11 cities (primarily Tier II). PML owns 40.28% in BARE.
Big Apple Real Estate (BARE). Through BARE, PML is focusing on North-Indian cities
under the Phoenix United brand. PML owns 73.47% in BARE.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Phoenix Mills (PHOE.BO; Sell): Year of consolidation
Investment view
We initiate on Phoenix Mills (PML) with a Sell rating. We believe that
CY2011 is the year of consolidation for the company with leasing and
completion risks.
Market cities ex HSP, Mumbai (31% of NAV). These ‘market cities’
will likely face delays especially in an environment where tight liquidity
will affect expansion plans of retailers. These four market cities
comprise 4.3 mn sqft with attributable area of 1.4 mn sqft. The four
market cities are likely to commence operations in CY2011, but stable
operations are likely only by mid-CY2012.
Hotel business (14% of NAV). This largely comprises upcoming
Shangri-La hotel in South Mumbai. This has faced some delay and
stable operations are likely from early-CY12E, in our view. Other hotels
such as in Kurla and Pune are in early stages of construction (Exhibit 78).
HSP, Mumbai (43% of NAV). Our cumulative value for this mall is
Rs17.7 bn or Rs122/share. Around 20% comprises Phase-IV, for which
plans have not yet been finalized.
Entry into residential business. PML has announced its intention to
launch residential projects in Bangalore and Chennai. Total cumulative
area of residential business is 3.1 mn sqft to be developed over next five
years.
Exit structures. Each SPV has diverse shareholding with mix of private
equity and HNI shareholders. As the projects get completed, new
structures will need to emerge to facilitate their exit. Changes in capital
structure of SPVs may alter attributable value to PML, in our view.
Adequately funded. We would highlight that various SPVs are
adequately funded with land being purchased through equity and have
long-term debt for construction. Phoenix raised Rs13 bn in equity in
CY2007 and this has helped it to remain debt-free at a standalone level.
Valuation
Phoenix has been among the best performing real estate stocks giving
returns of -11% vs -46% for BSE real estate index since January 2010.
Our target price of Rs214 is based on 20% discount to our FY12E
based NAV of Rs267. Around 65% of this NAV faces leasing and
completion risk and more clarity will start emerging from end-CY11E,
in our view.
On a standalone basis, PML trades at FY12E P/B of 1.6X vs sector
average of 1.4X.
Key risks to our thesis
Higher-than-expected leasing rentals.
Higher FSI approval at HSP, Mumbai.
Lower post-tax cap rate than our assumption of 10%.
Significant outperformance constrains relative valuations
PML has outperformed real estate index by 34% since January 2010 (see Exhibit 89). Since
early 2007, the stock performance was in line with the broader index, but since Jan 2010
there has been a significant divergence. Our target price of Rs214 is based on 20% discount
(see Exhibit 14) to our FY12E based RNAV of Rs267 on account of leasing and completion
risks
CY2011 will likely be year of consolidation
We discuss various revenue drivers:
High Street Phoenix, Mumbai (HSP). This comprises 1 mn sqft of operational retail real
estate in Mumbai. We expect revenue growth of 10% in FY2012E driven by full occupancy.
Rental renegotiations are going to drive 9%-10% revenue growth in FY2013E, in our view.
Other market cities. Four more ‘market cities’ will become operational in CY2011 with
cumulative area of 4.3 mn sqft. We expect FY2013E is to be the first full year of operations
with cumulative revenues of Rs4.4 bn and Rs1.6 bn attributable to Phoenix Mills. We need
to closely monitor progress on leasing and operations of these market cities. We assume
monthly rentals per sqft of Rs85 for Chennai, Rs70 for Pune, Rs60 for Bangalore and Rs95
for Kurla.
Residential/Commercial revenues. Various SPVs hold 3.1 mn sqft of residential projects
and 1.7 mn sqft of commercial projects. We model selling prices of Rs5,000/sqft for
Bangalore and Rs4,500/sqft for Chennai.
Phoenix Mills is adequately funded
We expect Phoenix Mills to have FY2011E net cash of Rs0.8 bn. PML has made cumulative
investments of Rs7.5 bn into various entities developing retail-led destinations. PML is
adequately capitalized since it raised Rs13 bn in two tranches in CY2007, which has also
been partly utilized for HSP, Mumbai. In addition, PML owns stakes varying from 20%-70%
in various SPVs with balance owned by private equity investors/HNIs.
Establishing presence across cities
PML along with its SPVs intends to be among India’s largest owner of retail assets. It is
executing project under three key segments:
Market cities. These are large-scale retail-led destinations comprising large mall, office,
complex, 5-star hotel and premium residences in select cases.
Entertainment World Developers Limited (EWDL). EWDL has three operational malls
with two in Indore and one in Nanded. EWDL is developing approximately 23 mn sqft
through 18 projects in 11 cities (primarily Tier II). PML owns 40.28% in BARE.
Big Apple Real Estate (BARE). Through BARE, PML is focusing on North-Indian cities
under the Phoenix United brand. PML owns 73.47% in BARE.
No comments:
Post a Comment