Buy Phoenix Mills, target Rs 775: ICICI Direct

ICICI Direct has a buy call on Phoenix Mills (PML) with a target price of Rs 775.

The current market price of PML is Rs 607.

Time period given by the brokerage is two years when PML price can reach the defined target.


Investment rationale by the brokerage-
PML to double its retail portfolio over next four to five years: PML enjoys a quality retail asset portfolio of eight operational assets across top cities aggregating 5.9 msf. It generated rental income of Rs 867.8 crore in FY18. It plans to double its retail portfolio to 10.6 msf over next four to five years leading to next leg of growth. Hence, we expect rental income to grow at 14.4 per cent CAGR to Rs 1,702.4 crore in FY18-23E.

CPPIB alliance, internal accruals to fund expansion: In our view, PML would require equity commitment of nearly Rs 1,710 crore during FY19E-23E to fund its current expansion plans. The recent CPPIB alliance bringing Rs 1,662 crore money in the platform (Rs 938 crore are infused in FY19E) for expansion of its retail portfolio (Hebbal: 1 msf, Wakad:1 msf, Indore:1.1msf) and operational cash flow worth Rs 700-1,000 crore per annum are more sufficient to fund its expansion plans.

Commercial portfolio to grow to nearly 3 msf: PML has four operational commercial assets (GLA: 1.16 msf). Also, it has two under construction assets at Pune, Chennai with GLA of 1.12 msf. and plans to develop commercial asset at PMC Hebbal with GLA of 0.65 msf. These expansions would augment PML’s commercial portfolio to nearly 3 msf in next four to five years. Once operational, we expect the commercial portfolio rentals to grow at 23.5 per cent CAGR to Rs 223.4 crore in FY18-24E.

To embark on growth path; initiate coverage with BUY: PML is currently trading at 14.1x FY20E EV/EBITDA. We like PML given its quality of retail asset portfolio, almost doubling its asset portfolio, which would drive the next leg of growth. In our view, PML’s current valuation reflects only operational retail & commercial asset valuation and does not assign any value to its expansion portfolio (nearly 24 per cent of our valuation). Hence, we initiate coverage on PML with SOTP based target price of Rs 775 per share.