The Phoenix Mills - Enhances stake in Chennai projects; event update; Buy (Edelweiss PDF link)

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The Phoenix Mills (PHNX IN, INR 201, Buy)

The Board of Phoenix Mills (PHNX) has approved acquisition of 32% stake in two Chennai SPVs in a marginally value-accretive transaction. We maintain ‘BUY/SO’ rating on the stock.

Phoenix raises stake in Chennai SPVs

PHNX will enhance its stake in two Chennai SPVs, Classic Mall Development and Classic Housing Projects, to 63% and 66% respectively by purchasing 32% stake in each of them for INR 1.06 bn from Kshitij Venture Capital Fund. PHNX currently holds an effective economic interest of 31% in Classic Mall Development [1 msf mall; operational in Q3FY13E; Satyam (Multiplex Operator), Pantaloon & Lifestyle has commenced fit-out activity) and a 0.25 msf residential development in Chennai (0.25 msf launched in H1FY12; sold ~70%)] and 34% in Classic Housing Projects (executing 0.25 msf residential development in Chennai).

Acquisitions marginally NAV accretive

We have valued the combined equity in these SPVs at INR4.8bn against the implied deal valuation of INR3.3bn, implying that the deal is marginally NAV accretive. Payment of the acquisition will be staggered, with INR0.3bn payable within 90 days and the balance at the end of 15 months from the date of the execution of the share purchase agreement. Kshitij will continue to own 32% in the SPVs (entitling it to receive dividends, if any) till Q1FY14E. PHNX will control majority stake post payment of final tranche against minority stakes currently.

Outlook and valuations: Value accretive; maintain ‘BUY’

Post acquisition, we revise our NAV marginally upwards to INR249/share from INR246/share to factor in the stake enhancement at a discount to fair value. Near-term triggers are: Shangri-La Hotel becoming operational in H1FY13 and commencement of the Chennai mall. We reiterate ‘BUY/SO’ rating on the stock, with target price of INR249/share at par with FY13E NAV.

The Phoenix Mills - Enhances stake in Chennai projects; event update; Buy