Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Phoenix Mills
A t inflection point
Event: Strong 4Q, FY11 earnings in-line
Q4 earnings grew 68% YoY (14% QoQ) better than expected due to EBITDA
growth of 69%, lower interest and one-time other income (Rs90m); however FY11
growth of 52% YoY, was in-line. Revenue growth of 4Q and FY11 of 36% and
53% YoY, was lower due to mismatch on revenue recognition for comm. pre-sales.
Leverage in check with net debt of Rs6.4bn (vs. Rs5.3bn in Q3) and D/E at 0.4x).
Impact: Maintain our 42% earnings CAGR for FY11-13E
We maintain our FY12, FY13E earnings forecasts of 29% and 56% respectively
driven on back of 1) growing revenue sharing income, 2) rental re-negotiation with
anchors of 0.15msf in Phoenix, Mumbai; 3) new malls (Pune, Bangalore, Kurla)
and hotel Shangri-La opening in FY12. Consolidation impact following higher
overheads, depreciation and interest initially; and disclosures will be critical.
Action: Reiterate Buy; amongst our top mid-cap picks in property
A quality retail asset portfolio at inflection point offering attractive return potential
on our target of Rs310. Key catalysts: 1) Ongoing rental revisions with anchors
(0.15msf) in Phoenix, Mumbai; 2) Successful/timely opening of Market City malls
and Hotel Shangri-La over 6-months, 3) earnings surprise from comm. and
residential pre-sales in FY12-13 and 4) strong recovery and FDI opened in retail.
Valuation: Compelling at 51% disc to NAV
Target is at 25% disc to our NAV of Rs412. Valuation are compelling at: 1) a 51%
disc to NAV, lower than Phoenix, Mumbai’s value of Rs218; and 2) 1.7x P/BV—
we see solid potential given rental annuity model & undervalued mall, hotel assets.
Operationally doing well
Strong earnings from High Street Phoenix (HSP), Mumbai on 1) growing
revenue sharing contribution (10% of Revenues), 2) new stores opened in 4Q
were Timberland, California Pizza Kitchen, Paul & Shark, Aldo, Canon,
Remanika. Targeting EBITDA of 75% in FY12 (vs. 71% in FY11).
Management guided ongoing rental re-negotiation with anchors (150,000 sf)
in HSP to drive avg rentals of Rs155/sf at end FY11 to Rs175-180/sf in
FY12E. Already negotiated 50,000sf at higher of Rs90/sf or 7% of revenue
(vs. Rs65/sf previously) and 18,000sf at Rs250-260/sf (vs. 14,000 sf earlier
at Rs65/sf). Balance of ~86,000sf is underway to be completed by 1HFY12.
Market City malls progressing well — Mgmt expects 1) Pune to open early-
Jun’11 (80% leased at avg rentals of Rs60/sf) 150 retailers to open; 2)
Bangalore (70% leased) and Kurla (65% leased) opening by Sept’11 and 3)
Hotel Shangri-La operational in Oct’11 with over 50% rooms (230 units).
We see momentum pick-up; but have factored all to go live by Dec’11.
Plans underway to soft-launch its residential projects in Bangalore, Chennai
over next 3-mths; total projects of ~3msf all in key locations – channel
checks suggest to get good pre-sales responses.
On asset portfolio, the management continues to consolidate its stake in
Market City projects – increased state in Bangalore mall from 33% to 38%
investing Rs100m. Is open to more opportunities ahead.
Net debt increased from Rs 5.2bn in Q3 to Rs 6.4 bn in Q4, but no repayment
worries with (D/E of 0.4x).
Valuations compelling at 51% disc to NAV
Phoenix is differentiated by its unique rental annuity model. Its annuity (53% of
NAV) is a good valuation support. We believe a combination of a rental yield
model and NAV-based valuations methodology is most appropriate. Our price
target of Rs310 is based on a 25% discount to NAV of Rs412 factoring risks of
delays for its upcoming market city malls. We ascribe a lower discount to
Phoenix than to its Tier-II peers (30-35%) due to: 1) its strong rental annuity and
deleveraged balance sheet; 2) the near-term execution visibility.
Our NAV estimate of Rs412 is based on the following assumptions: 1) Rs218
per share for High Street Phoenix using a rental-yield model with a 9% cap-rate,
5% terminal growth; and Phase IV land (0.25msf) valued at Rs10,000/sf; 2) a
3.75msf economic interest in Market City projects (ex-hotels); 3) a 5.1msf
economic interest in EWPDL and BARE projects; and 4) Rs15-20m capital cost
per room for 1,000 rooms following its 75% stake in hospitality venture. This
apart, we have factored 1) total consolidated net-debt of Rs8.8bn, 2) cost of
capital of 13%; and 3) a tax rate of 30%.
With HSP’s strong rental annuity (Rs218/share) providing good valuation
support, we believe other retail and hotel assets under development are available
cheap. We believe the stock offers a re-rating potential and is a good proxy to
play the retail recovery cycle.
Trading at 22% disc to our bear-case NAV
With NAVs likely to remain volatile during recovery cycles, we highlight the
bull-case and bear-case scenario for Phoenix’s NAV. The bear case: 1) factors in
2% terminal growth for HSP at 10% cap-rate (53% of NAV), 2) values EWDPL,
BARE and other hospitality projects on basis of undeveloped land reserves
(22% of NAV); and 3) factors in 1-2 yrs delays in the execution of malls and
hotel projects (Market City projects, 25% of NAV). Our bull case builds in 1) a
9% cap-rate for HSP’s valuation; 2) 10% higher prices/rentals for Market City
projects and other assets; and 3) a faster execution cycle. We believe this
provides a good perspective on NAV downside risks and upside potential.
Phoenix Mills
Phoenix Mills is a leading Indian developer of large-format retail-led mixed use
developments. Its developments are in prime locations feature retail stores;
hypermarkets; multi-screen theatres; entertainment zones; food courts; and
hotels, and total more of 2.5msf. The company began operations as a textile
manufacturing company in 1905 on 17.3 acres of land in Lower Parel, Mumbai.
In 1987, the company largely exited the textile sector and entered the real estate
market in Mumbai.
Statement of Risk
Key risks to PML include a slowdown in retail recovery, economic growth and
change in retail foreign investment regulations
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Phoenix Mills
A t inflection point
Event: Strong 4Q, FY11 earnings in-line
Q4 earnings grew 68% YoY (14% QoQ) better than expected due to EBITDA
growth of 69%, lower interest and one-time other income (Rs90m); however FY11
growth of 52% YoY, was in-line. Revenue growth of 4Q and FY11 of 36% and
53% YoY, was lower due to mismatch on revenue recognition for comm. pre-sales.
Leverage in check with net debt of Rs6.4bn (vs. Rs5.3bn in Q3) and D/E at 0.4x).
Impact: Maintain our 42% earnings CAGR for FY11-13E
We maintain our FY12, FY13E earnings forecasts of 29% and 56% respectively
driven on back of 1) growing revenue sharing income, 2) rental re-negotiation with
anchors of 0.15msf in Phoenix, Mumbai; 3) new malls (Pune, Bangalore, Kurla)
and hotel Shangri-La opening in FY12. Consolidation impact following higher
overheads, depreciation and interest initially; and disclosures will be critical.
Action: Reiterate Buy; amongst our top mid-cap picks in property
A quality retail asset portfolio at inflection point offering attractive return potential
on our target of Rs310. Key catalysts: 1) Ongoing rental revisions with anchors
(0.15msf) in Phoenix, Mumbai; 2) Successful/timely opening of Market City malls
and Hotel Shangri-La over 6-months, 3) earnings surprise from comm. and
residential pre-sales in FY12-13 and 4) strong recovery and FDI opened in retail.
Valuation: Compelling at 51% disc to NAV
Target is at 25% disc to our NAV of Rs412. Valuation are compelling at: 1) a 51%
disc to NAV, lower than Phoenix, Mumbai’s value of Rs218; and 2) 1.7x P/BV—
we see solid potential given rental annuity model & undervalued mall, hotel assets.
Operationally doing well
Strong earnings from High Street Phoenix (HSP), Mumbai on 1) growing
revenue sharing contribution (10% of Revenues), 2) new stores opened in 4Q
were Timberland, California Pizza Kitchen, Paul & Shark, Aldo, Canon,
Remanika. Targeting EBITDA of 75% in FY12 (vs. 71% in FY11).
Management guided ongoing rental re-negotiation with anchors (150,000 sf)
in HSP to drive avg rentals of Rs155/sf at end FY11 to Rs175-180/sf in
FY12E. Already negotiated 50,000sf at higher of Rs90/sf or 7% of revenue
(vs. Rs65/sf previously) and 18,000sf at Rs250-260/sf (vs. 14,000 sf earlier
at Rs65/sf). Balance of ~86,000sf is underway to be completed by 1HFY12.
Market City malls progressing well — Mgmt expects 1) Pune to open early-
Jun’11 (80% leased at avg rentals of Rs60/sf) 150 retailers to open; 2)
Bangalore (70% leased) and Kurla (65% leased) opening by Sept’11 and 3)
Hotel Shangri-La operational in Oct’11 with over 50% rooms (230 units).
We see momentum pick-up; but have factored all to go live by Dec’11.
Plans underway to soft-launch its residential projects in Bangalore, Chennai
over next 3-mths; total projects of ~3msf all in key locations – channel
checks suggest to get good pre-sales responses.
On asset portfolio, the management continues to consolidate its stake in
Market City projects – increased state in Bangalore mall from 33% to 38%
investing Rs100m. Is open to more opportunities ahead.
Net debt increased from Rs 5.2bn in Q3 to Rs 6.4 bn in Q4, but no repayment
worries with (D/E of 0.4x).
Valuations compelling at 51% disc to NAV
Phoenix is differentiated by its unique rental annuity model. Its annuity (53% of
NAV) is a good valuation support. We believe a combination of a rental yield
model and NAV-based valuations methodology is most appropriate. Our price
target of Rs310 is based on a 25% discount to NAV of Rs412 factoring risks of
delays for its upcoming market city malls. We ascribe a lower discount to
Phoenix than to its Tier-II peers (30-35%) due to: 1) its strong rental annuity and
deleveraged balance sheet; 2) the near-term execution visibility.
Our NAV estimate of Rs412 is based on the following assumptions: 1) Rs218
per share for High Street Phoenix using a rental-yield model with a 9% cap-rate,
5% terminal growth; and Phase IV land (0.25msf) valued at Rs10,000/sf; 2) a
3.75msf economic interest in Market City projects (ex-hotels); 3) a 5.1msf
economic interest in EWPDL and BARE projects; and 4) Rs15-20m capital cost
per room for 1,000 rooms following its 75% stake in hospitality venture. This
apart, we have factored 1) total consolidated net-debt of Rs8.8bn, 2) cost of
capital of 13%; and 3) a tax rate of 30%.
With HSP’s strong rental annuity (Rs218/share) providing good valuation
support, we believe other retail and hotel assets under development are available
cheap. We believe the stock offers a re-rating potential and is a good proxy to
play the retail recovery cycle.
Trading at 22% disc to our bear-case NAV
With NAVs likely to remain volatile during recovery cycles, we highlight the
bull-case and bear-case scenario for Phoenix’s NAV. The bear case: 1) factors in
2% terminal growth for HSP at 10% cap-rate (53% of NAV), 2) values EWDPL,
BARE and other hospitality projects on basis of undeveloped land reserves
(22% of NAV); and 3) factors in 1-2 yrs delays in the execution of malls and
hotel projects (Market City projects, 25% of NAV). Our bull case builds in 1) a
9% cap-rate for HSP’s valuation; 2) 10% higher prices/rentals for Market City
projects and other assets; and 3) a faster execution cycle. We believe this
provides a good perspective on NAV downside risks and upside potential.
Phoenix Mills
Phoenix Mills is a leading Indian developer of large-format retail-led mixed use
developments. Its developments are in prime locations feature retail stores;
hypermarkets; multi-screen theatres; entertainment zones; food courts; and
hotels, and total more of 2.5msf. The company began operations as a textile
manufacturing company in 1905 on 17.3 acres of land in Lower Parel, Mumbai.
In 1987, the company largely exited the textile sector and entered the real estate
market in Mumbai.
Statement of Risk
Key risks to PML include a slowdown in retail recovery, economic growth and
change in retail foreign investment regulations
No comments:
Post a Comment