Buy Phoenix Mills, target price Rs 865: ICICI Securities
The brokerage likes Phoenix Mills because it has a strong brand recall and is the market leader in malls across India.
By ETMarkets.com | Updated:
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ICICI Securities has given a buy rating on Phoenix Mills with a target price of Rs 865. The brokerage has upgraded the rating to “buy” from “add” owing to the recent stock price correction and derives comfort from the company's long-term growth story which remains intact.
The Covid-19 issue is likely to linger till at least Q1FY21 (April-June 2020), in the worst case scenario, Phoenix stands to lose 20-25 per cent of its annual revenue assuming that a rent-free period is given to retailers. According to the brokerage, the most likely scenario is that mall operators and retailers may share the losses given that malls have now become a relationship-based business with the same retailer having presence across Phoenix’s malls. The share price has moved down by -9.10 per cent from its previous close of Rs 648. The last traded stock price was Rs 589. Incorporated in 1905, Phoenix is a midcap company with a market cap of Rs 9925.95 crore, operating in the real estate sector.
Investment Rationale
The brokerage likes Phoenix Mills because it has a strong brand recall and is the market leader in malls across India. It also has a strong pipeline of projects and moreover, it is a derivative play on the Indian consumption story. ICICI Securities has valued Phoenix Mills on a SoTP basis with a combination of DCF-based NAV on FY20E basis assuming a cap rate of 8 per cent for rental assets. The target price has been revised to Rs 865/share (earlier Rs 940/share) based on 1 time FY20E NAV factoring in one-time loss of Rs 2.0bn of rental income in Q1FY21, slower rate of rental growth of 5 per cent in FY22 vs. 7 per cent earlier across existing malls and lower FY21 occupancy in St. Regis hotel. The stock has been upgraded to buy from add, post the 26 per cent correction in stock price in March 2020 owing to Covid-19 concerns.
Key upside risks: Higher than expected rental income growth across operational malls and under-construction malls achieving higher than estimated rental income on commencement of operations.
Financials
The Covid-19 issue is likely to linger till at least Q1FY21 (April-June 2020), in the worst case scenario, Phoenix stands to lose 20-25 per cent of its annual revenue assuming that a rent-free period is given to retailers. According to the brokerage, the most likely scenario is that mall operators and retailers may share the losses given that malls have now become a relationship-based business with the same retailer having presence across Phoenix’s malls. The share price has moved down by -9.10 per cent from its previous close of Rs 648. The last traded stock price was Rs 589. Incorporated in 1905, Phoenix is a midcap company with a market cap of Rs 9925.95 crore, operating in the real estate sector.
Investment Rationale
The brokerage likes Phoenix Mills because it has a strong brand recall and is the market leader in malls across India. It also has a strong pipeline of projects and moreover, it is a derivative play on the Indian consumption story. ICICI Securities has valued Phoenix Mills on a SoTP basis with a combination of DCF-based NAV on FY20E basis assuming a cap rate of 8 per cent for rental assets. The target price has been revised to Rs 865/share (earlier Rs 940/share) based on 1 time FY20E NAV factoring in one-time loss of Rs 2.0bn of rental income in Q1FY21, slower rate of rental growth of 5 per cent in FY22 vs. 7 per cent earlier across existing malls and lower FY21 occupancy in St. Regis hotel. The stock has been upgraded to buy from add, post the 26 per cent correction in stock price in March 2020 owing to Covid-19 concerns.
Key upside risks: Higher than expected rental income growth across operational malls and under-construction malls achieving higher than estimated rental income on commencement of operations.
Financials
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For the quarter ended December 31, 2019, the company reported consolidated sales of Rs 511.79 crore, up 23.30 per cent from last quarter sales of Rs 415.07 crore and up 16.20 per cent from last year same quarter sales of Rs 440.43 crore. The company has reported net profit after tax of Rs 96.49 crore in the latest quarter.Too busy to trade in stocks? Invest in Mutual Funds with ET Money!
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