Buy Phoenix Mills, target Rs 708: Motilal Oswal Securities

Motilal Oswal Securities has a buy call on Phoenix Mills with a target price of Rs 708.

The current market price of Phoenix Mills is Rs 619.65.

Time period given by the brokerage is one year when Phoenix Mills price can reach the defined target.


Investment rationale by the brokerage:
On track to achieve 11-12msf operational retail portfolio target by FY23: PHNX currently has an operational retail portfolio of 5.9msf. During Aug’17-Jul’18, it closed five acquisitions — (a) land parcels in Pune, Bangalore and Ahmedabad, and (b) under-construction retail assets in Lucknow and Indore. These acquisitions take the under development retail leasable portfolio to 4.6msf; the company also has mixed use development potential on most of these assets. It has plans to add more 1-2 new assets.

Progress on under development assets: Three malls PMC Wakad in Pune, PMC Hebbal in Bengaluru, and PMC Indore are under the Island Star Mall Developers Private Limited — an alliance with CPPIB where PHNX has a 51 per cent stake. PMC Lucknow is 100 per cent owned and Palladium Ahmedabad is a 50:50 alliance with the BSafal group.

PMC Wakad, Pune: Excavation commenced on 7th Feb’19 and the mall is expected to start operations during FY23. On the approvals front, it has received the environmental clearance and consent to establish.

PMC Hebbal, Bengaluru: Excavation will commence in Feb’19 and the mall is expected to commence operations during FY23. On the approvals front, it has obtained the environmental clearance and the BDA approval; the BBMP approval to commence construction has also been obtained. PMC Hebbal has no competition in its vicinity, and is therefore expected to do well.

PMC Indore: PHNX acquired it as an under-construction retail development, which is expected to commence operations in FY21; the revalidation of approvals is in process.

PMC Lucknow: PHNX acquired it as an under-construction retail development; construction is in progress with all requisite approvals in place. Already nearly 60 per cent of the leasable area is tied up and operations are expected to start during 2HFY20.

Palladium Ahmedabad: Excavation commenced in Jan’19 and the mall is expected to be operational during FY22. It has received environmental clearances and construction commencement approvals.

Further development potential at existing assets: There is further development potential at PHNXs existing malls, such as (a) PMC Whitefield — retail asset can be further expanded by 0.35msf and office space by 1.2msf, and (b) HSP Palladium —retail asset can be expanded by 0.4-0.5msf and office space by 1.2msf. Additionally, existing office assets at PMC Chennai have potential expansion of 0.42msf area.

Capex to be funded by a mix of debt and equity: Of the total ongoing investment of about Rs 56.8b towards construction of five new malls and one new office asset; the company has already invested Rs 22.3b till date and the balance Rs 34.5b (Rs 20b under the CPPIB platform) will be invested over the next couple of years till FY23 when most of these assets become operational. An approximate cash flow of Rs 20b from residential segment is expected to be utilized/aid towards its capex plan. Further, on expansion of Fountainhead, LRD on tower 1 is expected to fund tower 2 and tower 3 constructions. The company has already tied up with some tenants – its strong relationship with tenants is reflected in continued association at its newer PMCs; about 60 per cent of the tenant mix at one of its newest malls – PMC Lucknow – is the same as the currently operational PMCs.