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UBS Investment Research
Phoenix Mills
A t an inflection point [EXTRACT]
Quality retail asset with near-term catalysts
We believe Phoenix’s prime assets located in Mumbai, Chennai, Bangalore and Pune,
strong rental annuities and a business model relatively insulated from sector/policy
issues differentiate the company. Near-term catalysts are: 1) growing revenue share at
High Street Phoenix (HSP), Mumbai; 2) successful/timely opening of Market City
malls and Hotel Shangri-La over the next six months; 3) earnings surprises from
commercial and residential pre-sales in FY12-13; and 4) strong recovery and
deregulation of retail FDI.
Doing well operationally; debt levels in check
1) Strong footfall has increased revenue share contribution to 10% of revenue at HSP
and rentals could grow 13-15% YoY to Rs180/sq. ft; 2) Market City update—Pune to
open by June 2011 with 150 retailers; Bangalore and Kurla targeted next, opening in
Q2 FY12 and Hotel Shangri-La by October 2011; 3) soft-launch of residential projects
in Bangalore, Chennai (3msf), in the next three months; and 4) consolidated net debt is
manageable at Rs6.4bn with no repayment concerns (D/E of 0.4x in FY11) and all
projects funded.
Business at an inflection point
We forecast an earnings CAGR of 42% for FY11-13, driven by: 1) growing revenue
share income at HSP; 2) a likely over 35% revision in rentals for anchors (0.15msf) at
HSP, Mumbai; 3) new Market City malls (Pune, Bangalore and Kurla) and Hotel
Shangri-La to open in FY12.
Valuation compelling at a 51% discount to NAV; our top mid-cap pick
Our price target of Rs310 is based on a 25% discount to our NAV estimate of Rs412.
Valuations are compelling at: 1) a 49% discount to NAV, lower than HSP’s value of
Rs218; and 2) 1.7x P/BV in FY11E—we see solid potential given its rental annuity
model and undervalued mall and hotel assets.
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
We believe key risks for real estate companies include a prolonged higher
interest rate environment (one+year), higher mortgage rates impacting consumer
affordability, slower annual GDP growth of <7% impacting demand for
residential and commercial properties, changes in foreign direct investment
regulations impacting capital availability for the sector, changes in regulatory
policies impacting commercial viability of development, and inflation impacting
consumer affordability.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Phoenix Mills
A t an inflection point [EXTRACT]
Quality retail asset with near-term catalysts
We believe Phoenix’s prime assets located in Mumbai, Chennai, Bangalore and Pune,
strong rental annuities and a business model relatively insulated from sector/policy
issues differentiate the company. Near-term catalysts are: 1) growing revenue share at
High Street Phoenix (HSP), Mumbai; 2) successful/timely opening of Market City
malls and Hotel Shangri-La over the next six months; 3) earnings surprises from
commercial and residential pre-sales in FY12-13; and 4) strong recovery and
deregulation of retail FDI.
Doing well operationally; debt levels in check
1) Strong footfall has increased revenue share contribution to 10% of revenue at HSP
and rentals could grow 13-15% YoY to Rs180/sq. ft; 2) Market City update—Pune to
open by June 2011 with 150 retailers; Bangalore and Kurla targeted next, opening in
Q2 FY12 and Hotel Shangri-La by October 2011; 3) soft-launch of residential projects
in Bangalore, Chennai (3msf), in the next three months; and 4) consolidated net debt is
manageable at Rs6.4bn with no repayment concerns (D/E of 0.4x in FY11) and all
projects funded.
Business at an inflection point
We forecast an earnings CAGR of 42% for FY11-13, driven by: 1) growing revenue
share income at HSP; 2) a likely over 35% revision in rentals for anchors (0.15msf) at
HSP, Mumbai; 3) new Market City malls (Pune, Bangalore and Kurla) and Hotel
Shangri-La to open in FY12.
Valuation compelling at a 51% discount to NAV; our top mid-cap pick
Our price target of Rs310 is based on a 25% discount to our NAV estimate of Rs412.
Valuations are compelling at: 1) a 49% discount to NAV, lower than HSP’s value of
Rs218; and 2) 1.7x P/BV in FY11E—we see solid potential given its rental annuity
model and undervalued mall and hotel assets.
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
We believe key risks for real estate companies include a prolonged higher
interest rate environment (one+year), higher mortgage rates impacting consumer
affordability, slower annual GDP growth of <7% impacting demand for
residential and commercial properties, changes in foreign direct investment
regulations impacting capital availability for the sector, changes in regulatory
policies impacting commercial viability of development, and inflation impacting
consumer affordability.
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