MOSL: PHOENIX MILLS (Buy)-Mall additions brighten rental prospects-To add 4msf of mall space to its existing portfolio

Phoenix Mills: Mall additions brighten rental prospects; To add 4msf of mall space to its existing portfolio of 6msf

(PHNX IN, Mkt Cap USD1.7b, CMP INR637, TP INR757, 19% Upside, Buy)

• Phoenix Mills (PHNX) acquired an under-construction mall in Indore for a consideration of INR2.3b. This was its third mall acquisition (Pune, Bangalore and now Indore) under the Canada Pension Plan Investment Board (CPPIB) platform - these malls are likely to commence operations over FY21-23, driving rental growth.
• PHNX has also acquired a 0.9msf under-construction mall in Lucknow for INR4.5b - 90% of RCC work is complete and operations are likely to commence by FY21.
• To enhance customer experience, PHNX intends allocate more space for F&B (by resizing tenants or adding new mall space), driving consumption, and thus, rentals.
• We find PHNX attractive due to its (a) strong operational performance, (b) scalability (through the CPPIB deal) and c) robust cash generation. We value its retail assets on DCF-based NAV approach, assuming a cap rate of 8% and a discount rate of 13%. We have a Buy rating on PHNX with an SOTP-based target price of INR757 (upside 19%).

 Completes land acquisition in three cities under CPPIB, deploys full capital  

• PHNX recently acquired an under-construction mall in Indore for a consideration of INR2.3b in an auction conducted by an asset reconstruction company. This marks its third acquisition under the CPPIB deal.
• This brownfield expansion entails development potential of 1.9msf, of which company plans to use 1.1msf for a retail mall. Around 80% of the civil structure is complete and the mall is likely to commence operations by late-FY21.
• In April 2018, PHNX acquired a 13-acre land parcel in Hebbal, Bengaluru, for a consideration of INR6.5b with development potential of 1.8msf. It plans to use 1msf for retail development (expected to commence operations by FY23) and balance for mixed-use development.
• PHNX also acquired a land parcel in Wakad, Pune, in August 2017 - it plans to use 1msf for a mall and balance 0.8msf for mixed-use purposes.
• These three malls under the CPPIB platform are expected to commence operations over FY21-23, driving rental growth for PHNX.