The Phoenix Mills Ltd – Research Reports By ICICI-Direct & Nirmal Bang

Quasi play on retail growth story!!!

Phoenix Mills (PML) is a market leader and owner of prime malls in India. It started the real estate business with its iconic High Street Phoenix mall. Sailing on its retail-led mixed-use development model, PML has an operational asset portfolio of eight operational retail assets aggregating 5.9 msf and four operational commercial assets aggregating 1.16 msf.

Going ahead, PML plans to almost double its retail portfolio and triple its commercial asset portfolio. Consequently, we expect its rental income to almost double to Rs 1702 crore in FY18-23E. We also highlight that PML is well funded for its current expansion plans through CPPIB alliance and strong internal accruals.

Hence, we initiate coverage on PML with an SOTP based target price of Rs 775.

PML to double its retail portfolio over next four to five years…

PML enjoys a quality retail asset portfolio of eight operational assets across top cities aggregating 5.9 msf. It generated rental income of Rs 867.8 crore in FY18. It plans to double its retail portfolio to 10.6 msf over next four to five years leading to next leg of growth. Hence, we expect rental income to grow at 14.4% CAGR to Rs 1702.4 crore in FY18-23E.

CPPIB alliance, internal accruals to fund expansion

In our view, PML would require equity commitment of ~Rs 1710 crore during FY19E-23E to fund its current expansion plans. The recent CPPIB alliance bringing | 1662 crore money in the platform (Rs 938 crore are infused in FY19E) for expansion of its retail portfolio (Hebbal: 1 msf, Wakad:1 msf, Indore:1.1msf) and operational cash flow worth Rs 700-1000 crore per annum are more sufficient to fund its expansion plans.

Commercial portfolio to grow to ~3 msf…

PML has four operational commercial assets (GLA: 1.16 msf). Also, it has two under construction assets at Pune, Chennai with GLA of 1.12 msf. and plans to develop commercial asset at PMC Hebbal with GLA of 0.65 msf.

These expansions would augment PML’s commercial portfolio to ~3 msf in next four to five years. Once operational, we expect the commercial portfolio rentals to grow at 23.5% CAGR to Rs 223.4 crore in FY18-24E.

To embark on growth path; initiate coverage with BUY…

PML is currently trading at 14.1x FY20E EV/EBITDA. We like PML given its quality of retail asset portfolio, almost doubling its asset portfolio, which would drive the next leg of growth. In our view, PML’s current valuation reflects only operational retail & commercial asset valuation and does not assign any value to its expansion portfolio (~24% of our valuation).

Hence, we initiate coverage on PML with SOTP based TP of Rs 775/share.