Phoenix Mills- Time for some retail therapy:: Macquarie Research,

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


Phoenix Mills
Time for some retail therapy
Event
 Phoenix Mills is a retail-focused real estate player. The company has
developed over 1.5mn sq ft of retail, entertainment, commercial and
residential complexes in central Mumbai. Phoenix Mills is developing real
estate in eight cities, such as Mumbai, Bangalore, Chennai, Pune, Raipur,
Agra and Indore, with a combined space of ~20m sqf.

Impact
 Focussed play on solid sub-segment: The retail sub-segment is seeing
signs of a strong volume recovery. This is driven by retailers who have
experienced 8%+ same store-sales growth. Phoenix Mills has therefore reembarked
its development plans from the pre-crisis era. Meanwhile the street
has seen only an initial round of benign upgrades. As a result, the company is
pricing in cap-rate and rent assumptions that reflect market conditions from
mid-2009. We believe this is unwarranted.
 Progress to be immediately visible in earnings growth: Importantly,
progress on leasing and execution in Phoenix Mills’ projects should become
visible in earnings growth in the near to medium term. We expect an earnings
CAGR of 49% over the next three years. This should be driven by projects
including ‘market-cities’ (integrated retail/ hospitality ventures) in Pune and
Kurla, which are slated to come on stream in a phased manner. We also
expect rent inflow from existing properties (in south Mumbai) to get a boost
from the renegotiation of rents that come up for renewal in CY11. We expect
average rents from this asset to rise 10–15% by FY13.
 Balance sheet – no concern: The company’s gearing stands at around
0.35%. Rent inflow is likely to be around Rs2bn in FY11– covering more than
100% of the annual interest cost. This is also likely to get stronger as higheryielding
assets come on stream by FY12 and FY13.
Action and recommendation
 Given expectations of a strong pickup in retail leasing and escalation of rents
in Phoenix Mills’ existing properties, we believe the stock should trade at a
20% discount to NAV.


Phoenix Mills Aide Memoire
Operational issues
1. What is your outlook on retail leasing and rentals in the island city of Mumbai and in the suburbs of Mumbai?
2. Please throw some light on your upcoming projects over the next two to three years.
3. How do you see the hospitality sector performing in the next two to three years?
4. What do you think could be bottlenecks in achieving the planned expansion in terms of material supply, capacity and
capital?
Financial issues
1. Please share some thoughts on the capital requirement for your planned expansion. Do you have any fundraising plans?
2. Please throw some light on your targeted cash flow from operations in the next 12 months.
Regulatory issues
1. What would you think are the biggest risks facing the company? Do you think there are any regulatory/policy risks?
2. What are the regulatory and policy risks the sector and company facing?