CRISIL assigns valuation grade of 4/5 to Phoenix Mills

The Phoenix Mills’ (Phoenix’s) Q3FY12 standalone results were below CRISIL Research’s expectations but earnings were in line due to higher-thanexpected margins. Revenue growth was driven by higher footfalls in High Street Phoenix (HSP) mall. Increase in occupancy levels and higher average lease rentals drove EBITDA margin and earnings growth. We continue to remain positive on Phoenix given the steady cash flow from HSP mall and encouraging initial response to the three market city projects launched in the recent past. We may revisit our earnings estimates post interaction with the management. We maintain the fundamental grade of 3/5.

Q3FY12 standalone result analysis
• Revenues grew by 12% y-o-y (up 6.5% q-o-q) to Rs 505 mn driven by steady performance at HSP mall. While occupancy levels increased by 200 bps q-o-q to 87%, average lease rentals grew by ~6% to Rs 177 per sq.ft. per month.

• EBITDA margin improved by 131 bps y-o-y to ~74% as ~50 bps increase in employee costs was offset by ~180 bps decline in other expenses. On a q-o-q basis, margin grew 358 bps.

• PAT grew 13.2% y-o-y (12.6% q-o-q) to Rs 269 mn. Interest expenses increased significantly from Rs 19 mn in Q3FY11 to Rs 57 mn in Q3FY11 due to interest outgo on lease rental discounting (LRD) loan of ~Rs 2.3 bn taken in the previous quarter. This was offset by 25% y-o-y growth in other income to Rs 113 as LRD proceeds was advanced to its SPVs for short-term financing requirements. EPS was Rs 1.9 vs. Rs 1.6 in Q3FY11.

Valuations: Current market price has upside
We continue to use the sum-of-the-parts method to value Phoenix and maintain our fair value of Rs 232 per share. Given the current market price, this translates to a valuation grade of 4/5.

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