The Phoenix Mills (2QFY15) : Hotel losses mask strong mall operations. Downgrade to NEUTRAL :: HDFC Sec, link

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The Phoenix Mills Ltd. | Q2FY15 Result Update | Maintain HOLD with PT of Rs 329 :: IndiaNivesh

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J.P. Morgan - Phoenix Mills

Phoenix Mills (PHNX IN) Annuity income build-out has been impressive		Neutral Price Target: Rs245.00 PT End Date: 31 Mar 2015

PML’s consolidated EBITDA (Rs6.8B) and earnings (Rs1.3B) were up by 160%/53% Y/Y, aided by strong growth in rental income from market city projects, steady HSP performance and higher contribution from “for sale” projects. Overall rental income for the company has increased to ~Rs4B (PML stake) in FY14. We expect this to increase further going into FY15, primarily driven by occupancy increases in market city projects and impending renewals at HSP (Lower Parel). This coupled with new residential/ office launches in the pipeline should drive strong earnings growth over FY15/16. Debt levels for the co. (attributable Rs20.7B) also seem to have peaked and should trend down as cash flows from “for sale” residential/ office launches kick in.

· HSP mall continues to register healthy growth. Upcoming renewals to provide further upside – HSP mall (Lower Parel) generated EBITDA of Rs1.9B, +8% Y/Y despite one-time rent reversals (Rs20-30MM) and high property tax on a retroactive basis. Adjusted for these one-offs, average rentals for HSP are at ~Rs230psf (up 15%+ Y/Y) with marginal rentals at Rs400psf+. Going into FY15, the company has 0.3msf of area coming up for renewals, which should provide further 10% upside to the HSP rentals.

· Strong annuity income growth from market city projects – Overall market city malls generated rental income of Rs3.4B in FY14 (PML stake ~60%), which is up 60% from last year levels. This was primarily driven by increase in occupancy levels (currently at 80-87% levels) across malls. Going into FY15, rental income from these malls should see a further 15%+ increase as occupancies further catch up to the pre-lease commitments (90%+ levels) and also given increasing footfall/ consumption trends (+20-30% Y/Y). Newly opened market city malls have now stabilized and are generating cash surplus.

· New residential projects in the pipeline should aid cash flows and earnings over FY15/16 – Company has recently launched a residential project in Pune (0.35msf, 10% sold) and has additional new launches in Bangalore / Mumbai in the pipeline over the next two quarters. Pricing across its “for sale” residential/ office projects have seen significant appreciation and contribution from new phase launches should yield better margins ahead. Pricing for its Bangalore project has increased to Rs10K+ psf (vs. Rs6-7K at launch) and Kurla (Mumbai) has increased to Rs12K psf (vs. 7-8K psf at initial launch).

· Palladium hotel tie up expected in next few months – Occupancy / ARRs for the Palladium hotel at 46%/ Rs8100 remain fairly muted. The hotel generated a cash loss in FY14 (Rs0.7B, JPMe). Co expects tie up with global hospitality player to be announced over the next two months. This should help improve the hotel performance. Co is targeting a cash breakeven for the hotel in FY15.

Table 1: PHNX – Standalone earnings

Rs MM	4Q FY13	3Q FY14	4Q FY14	% ch Q/Q	% ch Y/Y	FY13	FY14	% ch Y/Y
Sales	722	756	787	4%	9%	2,706	2,948	9%
EBITDA	479	497	480	-3%	0%	1,786	1,931	8%
EBITDA margin	66%	66%	61%	-5%	-5%	66%	66%	0%
Depreciation	(71)	(59)	(65)	11%	-8%	(275)	(254)	-8%
Other Income	140	197	216	10%	53%	565	800	41%
Interest	(66)	(146)	(129)	-12%	97%	(265)	(445)	68%
PBT	483	489	501	2%	4%	1,810	2,032	12%
Tax	(122)	(111)	(137)	24%	13%	(472)	(507)	8%
Tax rate	25%	23%	27%	21%	9%	26%	25%	-1%
PAT	361	378	364	-4%	1%	1,339	1,525	14%

Source: Company

Table 2: Phoenix – FY14 consolidated financials

Rs MM	FY13	FY14	% ch Y/Y
Sales	4,699	14,485	208%
EBITDA	2,632	6,784	158%
EBITDA Margin	56%	47%
Depreciation	(474)	(1,055)	122%
EBIT	2,157	5,729	166%
EBIT Margin	46%	40%
Financial expenses	(1,430)	(3,451)	141%
Other income	521	391	-25%
PBT	1,247	2,669	114%
Total Tax	(428)	(909)	112%
Tax Rate	34%	34%
Share of profit/loss in associates	11	(28.8)
Minority interest	17.0	(531)
Profit after tax post minority	842	1,285	53%

Source: Company

Investment Thesis

Phoenix is the only listed retail real estate play in India. Execution and leasing risks in case of Phoenix have largely been taken out as the new malls are now operational and footfalls /consumption trends have been reasonably good. Debt levels have peaked with capex now behind and should come down from next year on the back of cash flows from the “for sale” projects. Response to the initial "for sale” projects has been good. We expect earnings growth to be strong over the next 1-2 years on contribution from "for sale" projects, stabilization of new malls and upcoming rent renewals at HSP.

 

Valuation

Maintain Neutral with SOTP-based Mar-15 price target of Rs245. We use a 14% WACC and 11% cap rate to value the company’s retail portfolio. We factor in a delay in cash breakeven for Palladium.

Phoenix SOTP

	Rs in MM	Per share
High Street Phoenix	24,224	168
Palladium Hotel	2,532	18
Market cities Rental portfolio	21,568	150
Sale Portfolio	8,851	61
Attributable Debt (for PML stake)	(21,900)	(152)
Net Present Value	35,276	245
Target Price	245

Source: J.P. Morgan estimates

Risks to Rating and Price Target

Key downside risk in our view pertains to PML’s minority stakes in SPV’s developing market city projects. This could raise concerns on exits required by private investor once assets become operational (though still some time away).

Key upside risks - a) Better-than-expected progress on debt reduction on the back of cash flows from project sales; b) Higher-than-expected rentals on renewals of Palladium (HSP, Lower Parel).

Phoenix Mills :Rising footfalls and occupancy at malls; maintain Buy (on CL) : Goldman Sachs

What's changed
We believe that launch/revamp of entertainment options at the Phoenix malls
in Mumbai, Bangalore and Chennai are driving an increase in footfalls and
occupancy. Some key events this quarter at Phoenix Mills include: (1)
Increased entertainment options at Kurla, Mumbai. We saw higher
occupancy and footfalls on our recent visit to the Phoenix mall at Kurla as
various entertainment and leisure retailers ramped up operations, including
the 12-screen PVR Cinemas and Amoeba; (2) IMAX at High Street
Phoenix (HSP). PVR has opened its first IMAX theatre in Mumbai at HSP,
Lower Parel. We expect this to further drive consumption at the mall; (3)
Stake purchases at SPVs. Phoenix Mills has announced stake purchases
at various market cities from IL&FS and Edelweiss Real Estate; and (4)
Luxury mall in Chennai. The company is constructing a luxury mall
measuring 0.2 mn sqft at Chennai in addition to the existing mall.
Implications
We believe that higher occupancy will drive higher rental revenues and
higher footfalls will boost consumption at various malls, leading to higher
revenue share for Phoenix Mills in FY14E. We believe that the luxury mall
in Chennai will drive up rentals over the medium term, as was the case
with the start of Palladium at HSP, Mumbai.
Valuation
We adjust our model for Phoenix Mills to reflect stake purchases in various
SPVs and introduce the luxury mall in Chennai. We raise our FY14E NAV
per share to Rs400 from Rs389 and our 12-month NAV-based target price
to Rs360 from Rs350. Our standalone Phoenix EPS estimates remain
unchanged. Maintain CL-Buy. Key catalysts: 1) continued increase in
consumption at various market cities in FY14; and 2) higher retail FDI
leading to demand for more quality retail space.
Key risks
Sustained GDP slowdown and continued high interest rates.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Asia Pacific Conviction Buy List

Phoenix Mills: Sell :: Business Line

Phoenix Mills Q3FY13 Results Update:: India Nivesh

Phoenix Mills Q3FY13 Results Update
Standalone Financials Review:
1. Top-line of standalone entity (i.e. the High Street Phoenix) reflects (1) ~18.0%
increase in average trading density (from Rs 1,850 psf. pm in Q3FY12 to Rs
2,185 psf. pm in Q3FY13), (2) increase in HSP rental from Rs 177 psf. pm in
Q3FY12 to Rs 204 psf. pm, (3) increase in mall consumption from Rs 2.6 bn in
Q2FY13 to Rs 3.1 bn in Q3FY13.
2. The reported numbers were very much in-line with our estimates. Top-line
grew by 20.1% on a year-over-year basis to Rs 693.4 mn. EBITDA margins of
the company improved from 64.7% in Q2FY13 to 68.3% in Q3FY13.
Improvement in the EBITDA margins got translated to better net margins too
(improved from 46.6% a year ago to 49.2% in Q3FY13).

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).

THE PHOENIX MILLS Enhances stake in Chennai projects :Edelweiss

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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 :Edelweiss

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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 (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).