MOSL: PHOENIX MILLS (Buy)-Residential business drives-Big beat
PHOENIX MILLS: Residential business drives; Big beat
(PHNX IN, Mkt Cap USD1.4b, CMP INR645, TP INR750, 16% Upside, Buy)
- Core portfolio PAT grows 40% YoY: 1QFY20 revenue grew 49% YoY to INR6,150m (v/s est. of INR4,447m). The beat was primarily driven by lopsided revenue growth in the residential segment driven by revenue recognition of 'One Bangalore West Tower 6'. EBITDA margin expanded 30bp YoY to 47.6% (v/s est. of 51.5%). Its core portfolio comprising retail malls, commercial and hospitality reported revenue of INR4,079m (in line with est. of INR4,124m). PAT rose 2x YoY to INR1,304m (higher than our est. of INR708m). The residential business contributed INR496m to 1QFY20 PAT, compared to contribution of INR21m in the year-ago period. Excluding the contribution from the residential business, PAT from the core portfolio of retail, hospitality and commercial offices came in at INR808m, up 40% YoY.
- Short-term moderation in retail consumption: Retail consumption increased 5% YoY to INR17,815m in 1QFY20. Retail rental income was up 7% YoY in 1QFY20 to INR2,596m. Retail EBITDA came in at INR2,556m, up 8% YoY. Consumption growth moderated at High Street Phoenix (HSP) to -1% YoY due to refurbishment work undertaken by two key tenants (PVR and Lifestyle). Also, tenant churn resulted in sluggish growth temporarily, dragging footfalls.
- Concall highlights: (1) Most segments witnessed 9-18% growth in consumption, except the electronics segment, which witnessed a decline. (2) Capex for additional FSI at HSP was estimated at ~INR11b; however, the proposed reduction in prices of premiums may lead to savings of INR3b.
- Valuation view: We believe that PHNX provides a unique way to play India's retail growth story due to (a) strong track record of execution, (b) scalability as reflected in its line-up of five new under-construction malls, and (c) robust cash generation. We value PHNX's retail assets on DCF-based NAV approach, assuming a cap rate of 8.5% (HSP - 8%) and a discount rate of 13.5%. We maintain Buy with an SOTP-based TP of INR750 (upside of 16%).
The Phoenix Mills Limited is an India-based company engaged in the construction of buildings carried out on own-account basis or on a fee or contract basis. The Company is engaged in the development and operation of malls and other real estate properties. It operates through twos segments: Property & Related Services, and Hospitality Services. It specializes in the ownership, management and development of retail-led mixed use properties that include shopping, entertainment, commercial, residential and hospitality assets, aggregating approximately 17.5 million square feet over 100 acres. Its core business includes Retail, Hospitality, Commercial and Residential. Under the Retail segment, it operates seven malls in six cities. Under Commercial and Hospitality segments, it operates five commercial centers in two cities and two completed hotel projects. The upscale mall houses various international brands, such as Gucci, Jimmy Choo, Bottega Veneta and Ermenegildo Zegna, among others.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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