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UBS Investment Research
Phoenix Mills
Good proxy to retail recovery
Q2 FY11: Strong earnings growth beats UBS and consensus estimates
Phoenix Mills’ (Phoenix) net income grew 26% YoY and 21% QoQ in Q2 FY11 to
Rs221m, on strong revenue growth of 68% YoY. This was largely led by new store
openings at Palladium, High Street Phoenix (HSP); and a higher EBITDA margin
of 72% compared to 69% in Q2 FY10. Lower interest costs also contributed to the
strong performance.
Good progress on leasing/execution; raises stake in Market City projects
Encouraging progress on the Pune and Bangalore Market City projects, with letters
of intent received for 75% and 70%, respectively; handed over for fitouts and
likely to open in Q4 FY11. Chennai is 60% leased, while Kurla is slow (55%
leased) with a three to six month delay in opening expected. Phoenix has taken
steps to expand its holdings in the Pune project (8% to 58.5%) and Bangalore
project (4.6% to 32.7%), investing Rs435m for both. We think this will yield longterm
benefits.
Catalysts—revenue sharing upside, Market City launches, retail pick up
1) Increased contribution from revenue sharing model: already witnessing
additional rentals of Rs10m/month at HSP with 1m footfalls a month in Q2 FY11;
2) successful launch of Market City—Pune, Bangalore in Q4 FY11 and greater
visibility for the Kurla mall opening; and 3) signs of strong retail recovery with
FDI allowed in retail.
Valuation: compelling at 40% discount to NAV—maintain Buy rating
We derive our Rs330.00 price target from a 20% discount to our NAV estimate of
Rs412. We think HSP’s strong rental annuity (Rs218/share) provides a good
valuation support. We believe other retail and hotel assets under development are
available cheap; and see potential for re-rating of the stock.
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