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Smart play on booming domestic consumption story: Phoenix Mills (PHNX)
is the pioneer in large scale, mixed-format retail development in India. The company
owns one of the most successful malls in India in High Street Phoenix (HSP),
Mumbai and through its subsidiaries and associate companies is undertaking 9-
10msf of retail projects across India. We see PHNX as a smart proxy to benefit
from the booming domestic consumption story, with no retail-specific risk due to
(a) a sound revenue-sharing business model, (b) pre-leased assets at attractive
locations and (c) improving retail outlook.
HSP to witness steady rental uptick from renegotiation, revenue sharing:
Rentals at HSP are likely to grow steadily due to (a) re-pricing of old rental contracts
of ~0.2msf and (b) steady uptick in revenue sharing contribution. PHNX's latest
re-pricing agreement with its two key anchors ended with an effective 40-100%
increase over the existing rentals. We estimate income from HSP assets to grow
to INR2b in FY12 against INR1.8b in FY11.
Market city projects to be next growth driver: PHNX's three Market City projects
are set to take off with retail space of ~4.4msf (PHNX's share of 1.8msf) starting
operations by FY12. A 1.2msf mall in Pune started operations in 1QFY12. With
60-80% of the malls being pre-leased, PHNX is well placed to winessed additional
rental of ~INR0.6b in FY12 and INR1.2b in FY13. A recent increase in stake in
Market City projects offers upside potential. Monetization of commercial assets
of ~0.25msf each in Pune and Kurla and the launch of residential projects in
Bangalore and Chennai will improve cash flow and cut debt in FY13.
Triggers: (a) successful monetization of commercial and residential projects, (b)
debt reduction in market city projects and (c) value unlocking in HSP Phase IV.
Valuation and view: We expect the company's annuity income to grow steadily
to ~INR2.8b in FY12 against INR1.7b in FY11, largely due to rental up-tick in
HSP and (b) the start of Market City malls. Our NAV estimate for PHNX is INR280
with retail contributing 63% of GAV. The stock trades at a PER of 19x FY13E
EPS of INR11.4, 1.6x FY13E BV and 25% discount to NAV. Maintain Buy.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Smart play on booming domestic consumption story: Phoenix Mills (PHNX)
is the pioneer in large scale, mixed-format retail development in India. The company
owns one of the most successful malls in India in High Street Phoenix (HSP),
Mumbai and through its subsidiaries and associate companies is undertaking 9-
10msf of retail projects across India. We see PHNX as a smart proxy to benefit
from the booming domestic consumption story, with no retail-specific risk due to
(a) a sound revenue-sharing business model, (b) pre-leased assets at attractive
locations and (c) improving retail outlook.
HSP to witness steady rental uptick from renegotiation, revenue sharing:
Rentals at HSP are likely to grow steadily due to (a) re-pricing of old rental contracts
of ~0.2msf and (b) steady uptick in revenue sharing contribution. PHNX's latest
re-pricing agreement with its two key anchors ended with an effective 40-100%
increase over the existing rentals. We estimate income from HSP assets to grow
to INR2b in FY12 against INR1.8b in FY11.
Market city projects to be next growth driver: PHNX's three Market City projects
are set to take off with retail space of ~4.4msf (PHNX's share of 1.8msf) starting
operations by FY12. A 1.2msf mall in Pune started operations in 1QFY12. With
60-80% of the malls being pre-leased, PHNX is well placed to winessed additional
rental of ~INR0.6b in FY12 and INR1.2b in FY13. A recent increase in stake in
Market City projects offers upside potential. Monetization of commercial assets
of ~0.25msf each in Pune and Kurla and the launch of residential projects in
Bangalore and Chennai will improve cash flow and cut debt in FY13.
Triggers: (a) successful monetization of commercial and residential projects, (b)
debt reduction in market city projects and (c) value unlocking in HSP Phase IV.
Valuation and view: We expect the company's annuity income to grow steadily
to ~INR2.8b in FY12 against INR1.7b in FY11, largely due to rental up-tick in
HSP and (b) the start of Market City malls. Our NAV estimate for PHNX is INR280
with retail contributing 63% of GAV. The stock trades at a PER of 19x FY13E
EPS of INR11.4, 1.6x FY13E BV and 25% discount to NAV. Maintain Buy.
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