Buy Phoenix Mills; target of Rs 301: Motilal Oswal

Motilal Oswal`s research report on Phoenix Mills

“Phoenix Mills' 4QFY13 standalone EBITDA was in line with est. at INR469m (+32 percentYoY, +1 percent QoQ). Revenue stood at INR722m (+20 percentYoY, +4 percentQoQ, v/s est. of INR706m); EBITDA margin down by 2pp QoQ to 66 percent. PAT stood at INR361m (v/s est of INR333m). FY13 consolidated revenue stood at INR4.7b (v/s est. of INR4.5b), EBITDA of INR2.6b (in-line) and PAT of INR842m (v/s est of INR1b). ? High street Phoenix (HSP) rentals grew +5 percentQoQ/+23 percentYoY to INR653m in 4QFY13, led by +17 percentYoY growth in consumption. Average rentals grew +4 percentQoQ and +17 percent YoY to INR212/sf/m in 4QFY13. FY13 rental at HSP stood at INR2.4b v/s our estimate of INR2.32b in FY13.”

“During 4QFY13, PHNX has witnessed moderation in ramp up progress across its market city retails, barring Chennai. Chennai mall has shown strong rampup progress as expected due to its very attractive locational advantage. In terms of trading density, the mall has already surpassed other three market city malls, which got operational almost 9-12 months ahead of it. After a strong 1HFY13, the monetization pace in phase IIs of the market city projects moderates in 3QFY13 and the trend continued in 4Q as well. PHNX plans to launch 3-4msf of residential projects over next 12 months including Bangalore East (1msf), Phase II of Bangalore West (2msf), Pune (0.3msf) and last phase of Chennai (0.4msf). Due to steady customer collections and negative working capital status in One Bangalore West project, the SPV Palladium Constructions has bought back INR781m worth of share, leading to an inflow of INR547m to PHNX in 4QFY13 (owing to its 70 percent stake in SPV). The board has approved stake purchase of INR1.4b in various market city projects over next 24 months. This comprises: (1)Purchase of Edelweiss Property Fund portfolio in PML group projects for INR690m; (2) Purchase of IL&FS 24 percent stake in Vamona Developers (Phoenix Market city, Pune) for INR716m. With these, PHNX would have overall capital commitment of INR1.9b for raising stakes in various SPVs over FY14-15. Consolidated net debt stood at INR17.7b (net DER 1x), up by INR3.4b QoQ on account of consolidation of Bangalore East SPV in 4Q.”

“With the commencements of Chennai Mall and Hotel Shangri La, PHNX's assetheavy model has almost fully converted into a strong earning model, which aids a play on booming domestic consumption story. We estimate 25 percent CAGR in rental income (including hotel) over next 2-3 years to INR6b in FY15 as against INR3.8b in FY13. With the stabilization of these assets, coupled with steady monetization of market City phase II (residential and commercial projects), we expect a steady improvement in capital efficiency (4-5pp expansion in RoCE/RoE) over FY13-15E."

"Encouraging off-take in Phase II projects would be crucial for reduction in leverage level and to support its continuous stake increase in various maturing SPVs. Key triggers for the stock would be (1) operational ramp-up at Market City SPVs, (2) de-leveraging, and (3) value unlocking from Phase IV at HSP, where higher FSI could lend further upside. The stock trades at 21.1x FY15E P/E, 2x FY15E P/B, and 8 percent discount to our NAV of INR301. Maintain Buy with TP of INR301,” says Motilal Oswal research report. 

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