The Phoenix Mills - Riding the consumption boom; company update; Buy: Edelweiss, PDF link

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The Phoenix Mills (PHNX IN, INR 210, Buy)

We recently met The Phoenix Mills (PHNX) management to get an update on the business. Following are the key takeaways:

Shangri-La Hotel, Chennai Market City set to open doors in H1FY12

Commencement of the 433-key Shangri-La Hotel and the 1 msf Chennai Market City will mark completion of PHNX’s capex. Between the two properties, we expect a stabilised revenue run rate of INR2.3bn per annum (PHNX economic interest: INR1.3bn) for a profit of INR0.7bn (PHNX economic interest: INR0.4bn).

Operational assets on track with rising occupancy and footfalls

PHNX currently has 5.20 msf of operational assets under management (PHNX economic interest: 3.03 msf). At FY12 end, these assets are operating at a blended occupancy of ~65% and are witnessing footfalls of 3.5-4.0mn per month resulting into robust consumption levels. Palladium Annexe commenced operations in February with expected lease revenue of INR400-500 psf. The Company is re-positioning a segment into a high-end retail ambience in the Pune Market City, where it expects a minimum guarantee of ~INR100 psf. Across operational assets, we estimate a monthly run rate of INR272mn (PHNX economic interest: INR189mn).

Gearing up for Phase II growth story

After successful launch of the residential project in Chennai, PHNX has now launched the 0.9 msf office space project in Kurla, in which it has already sold 0.08 msf at an average price of INR9,000 psf. Approvals process in Pune and Bengaluru-West is underway and launch of the Bengaluru-West residential project is expected in H1FY13.

Outlook and valuations: Steady ramp up; maintain ‘BUY’

While Shangri-La Hotel and Chennai Market City are set to commence in H1FY12, operational assets continue to register increased occupancies and footfalls. After the successful launch of Chennai residential project, the company has launched phase II of commercial project at Kurla, which will aid cash generation. We reiterate ‘BUY’with a target price of INR249/share on FY13E NAV.

The Phoenix Mills - Riding the consumption boom; company update; Buy

Regards,