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PHOENIX MILLS LTD (PML)
PRICE: RS.174 RECOMMENDATION: BUY
TARGET PRICE: RS.236 FY13E P/E: 19.2X
Phoenix Mills ltd (PML) has emerged as a key beneficiary of growing
demand in the retail sector with its flagship premium mall High Street
Phoenix (HSP) located in prime area of central Mumbai. HSP has become a
cash cow for Phoenix mills with its retail-led mixed use format spread
across nearly 0.9 mn sq ft. Its lease model along with revenue sharing
enables the company to earn a stable revenue stream which is linked to the
consumption patterns witnessed in respective retail outlets. Phoenix Mills
Ltd is replicating the model of HSP in the format of market cities with a mix
of retail, commercial and residential segments. With its expertise in
managing mixed use retail assets, we expect company to benefit from rising
consumption levels in cities like Pune, Bangalore, Mumbai and Chennai.
Along with this, company has also ventured into other cities through its
investment in players like Entertainment World Developers Ltd and Big
Apple Real estate Ltd.
We expect PML to benefit from improvement in occupancies in HSP, rent
negotiations with its anchor clients at higher rates as well as
commencement of rentals at market cities during FY12. PML's hospitality
venture Shangri-La is also expected to begin operations by Q1FY13 which is
also likely to increase overall footfalls for HSP. We thus expect consolidated
revenues to grow at a CAGR of 58% between FY10-FY13. Operating margins
on consolidated basis are likely to remain high, though lower than
standalone HSP. Net profit growth going forward is expected to be
impacted by higher interest and depreciation on commissioning of market
cities operations. We thus expect net profits to grow at a CAGR of 28%
between FY10-FY13.
At current price of Rs.174, stock is trading at 24.5x and 19.2x P/E and 18.7x
and 11.7x EV/EBITDA on FY12 and FY13 estimates. We value the company on
sum-of-the-parts valuation methodology and arrive at a target price of
Rs.236 on FY13 estimates. We are positive on the company due to its robust
business model, excellent operating cash flows from HSP and expertise to
capitalize on the upcoming opportunities in the retail sector in various
cities. We thus recommend BUY on the stock.
Key investment argument
q Phoenix mills holds quality rental portfolio. Company holds high quality
rental portfolio mainly comprising of High Street Phoenix located in prime area of
central Mumbai. With launch of international brands, it has emerged as
Mumbai's premier lifestyle destination with footfalls of more than 1.5 mn every
month. Rentals from HSP have been witnessing improvement due to rent
negotiation with its anchor clients as well as with launch of Palladium. Rent
based on revenue share model has also aided improvement in overall rentals.
We expect high street phoenix's revenues on a standalone basis to grow to Rs
2.1 bn by FY13 from Rs 1.1 bn in FY10.
q Rental revenues to improve with launch of new market cities. Company is
replicating the model of HSP in the format of market cities with a mix of retail,
commercial and residential such as Pune Market City, Mumbai Market City,
Chennai Market City and Bangalore Market City. Some of these market cities
have already been launched during FY12. Thus, retail portfolio of the company is
expected to increase 6 fold from 0.9mn sq ft from HSP currently to 5.3 mn sq ft
including all market cities.
q Residential launches to ease debt levels of market cities. Residential
launches are expected from Bangalore market city in next 6 months. Soft launch
has already commenced from Chennai market city. These launches are expected
to bring down the debt levels in market cities and would also be used for second
phase of launches.
q Venture into other cities through EWDL and BARE. Apart from its presence
in tier 1 cities such as Mumbai, Chennai, Bangalore and Pune, Phoenix mills has
also increased its presence in other cities such as Indore, Nanded, Lucknow,
Bareilly etc through its stake in Entertainment World Developers Ltd (EWDL) and
Big Apple Real Estate Pvt Ltd (BARE). EWDL is developing approximately 23 mn
sq ft through 14 projects in 11 cities. Through BARE, Phoenix mills is expanding
its footprint in north Indian cities under Phoenix United brand.
q Industry scenario remains stable for retail rentals in key cities. Rentals
have already corrected from the peak levels seen during Q2FY09 and prompted
the retailers to move towards a revenue sharing model. Rents have likely found
support at the current levels and there is low risk of downside from the current
levels despite upcoming supplies due to higher occupancy levels expected in the
new quality malls.
q Launch of Shangri la to increase footfalls in High Street Phoenix. Phoenix
mills hospitality venture The Shangri-La, five star deluxe hotel is expected to be
launched by Mar, 2012 or Q1FY13. Hotel will have 410 rooms and 23 serviced
apartments and will compete with Four Seasons and ITC located in the near
vicinity. Though in near term, hospitality venture may not be profitable due to
relatively lower occupancy levels, but we expect footfalls for High Street Phoenix
to witness an increase.
q Revenues to jump in FY13 on a consolidated basis. Phoenix mills has a
majority holding in Pune market city, Bangalore residential project and BARE.
With launch of Pune market city at the end of Q1FY12, we expect consolidated
revenues to witness an increase on account of rental income and proceeds from
commercial project revenue booking during FY12. Revenues are likely to
increase further in FY13 due to higher occupancy levels in Pune market city,
launch of residential project in Bangalore and higher revenues from Big Apple.
We thus expect consolidated revenues to jump to Rs 3.1 bn in FY12 and Rs 4.9
bn in FY13.
q Return ratios to improve going forward. Phoenix mills', being an asset
heavy model, has lower return ratios - RoE and RoCE. Its RoE and RoCE are
expected to improve to 7.3% and 8.5% respectively for FY13 as against 4% and
3.9% respectively seen in FY10. Company would also have a comfortable
leverage on a consolidated basis and its D/E would still remain comfortable even
after it increases to 0.7x and 0.8x in FY12 and FY13 respectively.
q Potential triggers of project launches. Phoenix mills will be launching market
cities and Shangri-La over next 3 months time frame. Along with this, EWDL and
BARE would also be launching their retail projects during Oct, 11 to Jun, 12. Thus
there is a strong visibility of project pipeline being delivered in next 18-24 months
even after taking into account a few months delay in each of these projects.
Valuations
Stock is currently trading at 24.5x and 19.2x P/E on FY12 and FY13 estimates respectively.
We have valued the company on DCF basis taking into account valuations
of high street phoenix and other market cities separately. We arrive at a target
price of Rs.236 on FY13 based on sum of the parts valuations methodology and recommend
BUY on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
PHOENIX MILLS LTD (PML)
PRICE: RS.174 RECOMMENDATION: BUY
TARGET PRICE: RS.236 FY13E P/E: 19.2X
Phoenix Mills ltd (PML) has emerged as a key beneficiary of growing
demand in the retail sector with its flagship premium mall High Street
Phoenix (HSP) located in prime area of central Mumbai. HSP has become a
cash cow for Phoenix mills with its retail-led mixed use format spread
across nearly 0.9 mn sq ft. Its lease model along with revenue sharing
enables the company to earn a stable revenue stream which is linked to the
consumption patterns witnessed in respective retail outlets. Phoenix Mills
Ltd is replicating the model of HSP in the format of market cities with a mix
of retail, commercial and residential segments. With its expertise in
managing mixed use retail assets, we expect company to benefit from rising
consumption levels in cities like Pune, Bangalore, Mumbai and Chennai.
Along with this, company has also ventured into other cities through its
investment in players like Entertainment World Developers Ltd and Big
Apple Real estate Ltd.
We expect PML to benefit from improvement in occupancies in HSP, rent
negotiations with its anchor clients at higher rates as well as
commencement of rentals at market cities during FY12. PML's hospitality
venture Shangri-La is also expected to begin operations by Q1FY13 which is
also likely to increase overall footfalls for HSP. We thus expect consolidated
revenues to grow at a CAGR of 58% between FY10-FY13. Operating margins
on consolidated basis are likely to remain high, though lower than
standalone HSP. Net profit growth going forward is expected to be
impacted by higher interest and depreciation on commissioning of market
cities operations. We thus expect net profits to grow at a CAGR of 28%
between FY10-FY13.
At current price of Rs.174, stock is trading at 24.5x and 19.2x P/E and 18.7x
and 11.7x EV/EBITDA on FY12 and FY13 estimates. We value the company on
sum-of-the-parts valuation methodology and arrive at a target price of
Rs.236 on FY13 estimates. We are positive on the company due to its robust
business model, excellent operating cash flows from HSP and expertise to
capitalize on the upcoming opportunities in the retail sector in various
cities. We thus recommend BUY on the stock.
Key investment argument
q Phoenix mills holds quality rental portfolio. Company holds high quality
rental portfolio mainly comprising of High Street Phoenix located in prime area of
central Mumbai. With launch of international brands, it has emerged as
Mumbai's premier lifestyle destination with footfalls of more than 1.5 mn every
month. Rentals from HSP have been witnessing improvement due to rent
negotiation with its anchor clients as well as with launch of Palladium. Rent
based on revenue share model has also aided improvement in overall rentals.
We expect high street phoenix's revenues on a standalone basis to grow to Rs
2.1 bn by FY13 from Rs 1.1 bn in FY10.
q Rental revenues to improve with launch of new market cities. Company is
replicating the model of HSP in the format of market cities with a mix of retail,
commercial and residential such as Pune Market City, Mumbai Market City,
Chennai Market City and Bangalore Market City. Some of these market cities
have already been launched during FY12. Thus, retail portfolio of the company is
expected to increase 6 fold from 0.9mn sq ft from HSP currently to 5.3 mn sq ft
including all market cities.
q Residential launches to ease debt levels of market cities. Residential
launches are expected from Bangalore market city in next 6 months. Soft launch
has already commenced from Chennai market city. These launches are expected
to bring down the debt levels in market cities and would also be used for second
phase of launches.
q Venture into other cities through EWDL and BARE. Apart from its presence
in tier 1 cities such as Mumbai, Chennai, Bangalore and Pune, Phoenix mills has
also increased its presence in other cities such as Indore, Nanded, Lucknow,
Bareilly etc through its stake in Entertainment World Developers Ltd (EWDL) and
Big Apple Real Estate Pvt Ltd (BARE). EWDL is developing approximately 23 mn
sq ft through 14 projects in 11 cities. Through BARE, Phoenix mills is expanding
its footprint in north Indian cities under Phoenix United brand.
q Industry scenario remains stable for retail rentals in key cities. Rentals
have already corrected from the peak levels seen during Q2FY09 and prompted
the retailers to move towards a revenue sharing model. Rents have likely found
support at the current levels and there is low risk of downside from the current
levels despite upcoming supplies due to higher occupancy levels expected in the
new quality malls.
q Launch of Shangri la to increase footfalls in High Street Phoenix. Phoenix
mills hospitality venture The Shangri-La, five star deluxe hotel is expected to be
launched by Mar, 2012 or Q1FY13. Hotel will have 410 rooms and 23 serviced
apartments and will compete with Four Seasons and ITC located in the near
vicinity. Though in near term, hospitality venture may not be profitable due to
relatively lower occupancy levels, but we expect footfalls for High Street Phoenix
to witness an increase.
q Revenues to jump in FY13 on a consolidated basis. Phoenix mills has a
majority holding in Pune market city, Bangalore residential project and BARE.
With launch of Pune market city at the end of Q1FY12, we expect consolidated
revenues to witness an increase on account of rental income and proceeds from
commercial project revenue booking during FY12. Revenues are likely to
increase further in FY13 due to higher occupancy levels in Pune market city,
launch of residential project in Bangalore and higher revenues from Big Apple.
We thus expect consolidated revenues to jump to Rs 3.1 bn in FY12 and Rs 4.9
bn in FY13.
q Return ratios to improve going forward. Phoenix mills', being an asset
heavy model, has lower return ratios - RoE and RoCE. Its RoE and RoCE are
expected to improve to 7.3% and 8.5% respectively for FY13 as against 4% and
3.9% respectively seen in FY10. Company would also have a comfortable
leverage on a consolidated basis and its D/E would still remain comfortable even
after it increases to 0.7x and 0.8x in FY12 and FY13 respectively.
q Potential triggers of project launches. Phoenix mills will be launching market
cities and Shangri-La over next 3 months time frame. Along with this, EWDL and
BARE would also be launching their retail projects during Oct, 11 to Jun, 12. Thus
there is a strong visibility of project pipeline being delivered in next 18-24 months
even after taking into account a few months delay in each of these projects.
Valuations
Stock is currently trading at 24.5x and 19.2x P/E on FY12 and FY13 estimates respectively.
We have valued the company on DCF basis taking into account valuations
of high street phoenix and other market cities separately. We arrive at a target
price of Rs.236 on FY13 based on sum of the parts valuations methodology and recommend
BUY on the stock.
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