Phoenix Mills - FDI in retail a significant positive :: Edelweiss

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The Union Cabinet has relaxed FDI norms for retail in India, in a move that will spur investments in the retail sector. We believe parliamentary approval is not required to bring this amendment into force. We expect this move to increase the number of brands in India, giving retail asset owners a larger addressable market size, enhancing their bargaining power, which will eventually reflect in higher rentals / higher asset values. Phoenix Mills (PML), with pole position in the sector, stands to benefit the most from improving demand in the sector. We reiterate ‘BUY’ with a target of INR244/share.

Liberalised norms to spur investments in front-end retail

The Union Cabinet’s nod to open the retail sector’s doors comes at time when global players, facing headwinds in their home countries, are scouting for new markets while domestic players, strangulated by piling debt, had slow tracked their expansion plans. We expect this decision to spur investments in front-end retail as new entrants vie for a pie of the Indian organized retail sector.

New entrants to expand addressable market size of asset owners

Currently, most malls have similar brands, lending little differentiation to shoppers, and also curtailing the bargaining power of mall owners. An influx of new entrants in the sector will broaden the addressable market size for mall owners and impart enhanced bargaining power, which will reflect in higher rentals and capital values.

Outlook and valuations: Key beneficiary; maintain ‘BUY’

PML, with its pole position in the domestic retail asset sector, is expected to be the prime beneficiary of this development. PML will have ~5 msf of operational area (PML’s share at 2.8 msf) by FY12E (including BARE) with three large malls across India—one each at Pune, Bengaluru and Kurla—which have become operational in the past six months. We reiterate ‘BUY’ as the stock is trading at 24% discount to NAV of INR244/share.