Phoenix Mills Ltd. share price target

We met the management of Phoenix Mills (PML) to understand the company, its business model and future growth prospects. PML is a market leader and owner of prime malls in India. Sailing on its retail-led mixed-use development business model, PML has a portfolio diversified into retail (mall), commercial, hospitality & residential segments. Key takeaways are: -i) To double mall portfolio to ~11-12 msf over the next few years ii) to expand its commercial portfolio from 1.6 msf to 3.1 msf (1.12 msf under construction and remainder under planning stage) and iii)...

PHNX's revenue declined 4%YoY to INR4,366m (est. of INR4,410m) in 4QFY18 due to reclassification of its subsidiary. Thus, on a like-to-like (L2L) basis, revenue was up 9% YoY toINR4,962m. EBITDA margin expanded 550bp YoY to 49.5% (est. of 48.7%). PAT rose 102% YoY to INR1,037m, higher than our estimate of INR690m due to lower tax and interest. For FY18, revenue fell 11% to INR16.2b (+1% on L2Lbasis), EBITDA margin expanded 150bp to 48% and PAT grew 28% to INR2.6b

PHNX - a pioneer in developing and operating malls - has become a partner of choice for retailers in India due to its impressive track record of consumption-led growth and strong portfolio of eight malls (6msf) spread across the top cities in India. This apart, the company specializes in mall management, an area where its competitors lag. Thus, we believe that it offers a unique opportunity for any retailer (both domestic and global) looking to expand rapidly in India. All this makes PHNX a 'specialist' play on India's promising consumption growth story, in our view. CPPIB has recently infused equity capital of INR16.6b (in tranches) in its subsidiary, Island Star Developers, and with leverage of 1:1, it will create a war chest of INR32b, gearing up the company for the next leg of growth. PHNX plans to acquire and build up to four new malls.

Malls: Rental income at its malls grew 10% YoY on improved consumption growth of 8% YoY (vs. 4% YoY in Q2 which was impacted by refurbishment at High Street Phoenix (HSP). Management expects rental growth to sustain over FY19-20, driven by rental renewals (~1.8 msf/~35% of its leasable area up for r

Stable operations; Chennai Mall back on track Phoenix Mills (PHNX)'s 3QFY18 profit increased 46% YoY as reduction in interest cost and improving operations across assets improved profitability. Consumption and trading density of its retail assets grew 8% and 6% YoY, respectively. While Kurla and Bangalore malls recorded consumption increases, Chennai and High Street Phoenix (HSP) saw muted consumption growth during the quarter. In HSP, 11% of leasable area became operations in Dec'17; Chennai consumption has stabilised on completion of category changes introduced in the mall. Rentals continued to improve across malls (10% YoY) and hotel revenues...

Rental business: Rental income collectively grew 9% YoY, despite slower consumption growth of 4% YoY (vs. 19% YoY in Q1), on account of refurbishment of 50k sf at High Street Phoenix (HSP). Development business remained muted with new sales weak at Rs 0.1 bn due to no new launches

The St. Regis (Palladium) hotel clocked Q1FY18 occupancy of 72% (up 1,100bps YoY) with ARR growing 8% YoY to Rs10,779 and operating EBITDA up 33% YoY to Rs223mn. We retain our TP for PHNX at Rs483 based on 1x FY18E NAV based on an 8% cap rate...

Visibility on rental growth remains strong driven by rental renewals (~1.7 msf of its leasable area up for renewal over FY18-20) at significantly higher Minimum Guarantees (MG) and better revenue share terms.

Phoenix Mills Ltd's (PML)~49% stake divestment in its subsidiary holding MarketCity Bangalore for ~Rs 16 bn to CPPIBvalues the mall at a cap rate of 6.4% as per our estimate(after stripping off additional development potential worth Rs 2 bn).

Phoenix Mills Ltd (PML) defied the slowdown due to demonetization to report 12% YoY and 10% YoY growth in rental income and consumption at its malls in Q3. The growthwas driven by festive demand in Oct' 16 and strong recovery (post demonetization) in Dec' 16 (consumption growth in Dec 16 stoo..