3QFY20 Results | Phoenix Mills | Motilal Oswal Institutional Equities

PHOENIX MILLS: Beat on estimates; outlook positive

(PHNX IN, Mkt Cap USD1.9b, CMP INR883, TP INR1015, 15% Upside, Buy

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-       PHNX’s third-quarter result highlights consistency in its operational performance amidst a subdued macro environment. The traction in its key retail assets is particularly impressive.

-       We find comfort in the company’s strong track record of execution/operations, scalability and robust cash generation. This, along with the affirmative guidance around consumption, reinforces our positive stance on the company. Maintain Buy.  

Solid consumption growth across retail assets

-       Revenue increased 16% YoY to INR5,118m (our estimate: INR4,968m) in 3QFY20. EBITDA was up 17% YoY at INR2,593m (our estimate: INR2,590m), with the margin coming in flat YoY at 50.7% (our estimate: 52.1%). Adj. PAT increased 30% YoY to INR919m (our estimate: INR769m).

-       Retail revenue was up 11% YoY at INR3,218m, while Residential revenue surged 142% YoY to INR481m largely driven by revenue recognition at One Bangalore West and Kessaku. Commercial segment grew by 2% YoY to INR334m, while Hospitality revenue increased 11% YoY to INR1,085m driven by higher occupancy at St. Regis (+200bp to 84%) and better average room rent (+12% YoY to INR13,857).

-       Retail consumption grew 10% YoY, largely driven by key assets like PMC, Bangalore (+14% YoY), PMC Pune (+10%) and PMC Mumbai (+10%). Category wise, growth was strong in Entertainment (+19%), Beauty & Cosmetics (+8%), Electronics (+13%), Jewelry (+15%) and F&B (+7%).

Highlights from management commentary

-       (a) In Jan’20, Maharashtra cabinet cleared the proposal to keep Mumbai open 24x7. This development is likely to positively impact consumption across PHNX’s retail assets in Mumbai over the long term. (b) Consumption growth so far in 4QFY20 is strong at 8-10% across its key retail assets. 

Valuation and view

-       PHNX is on track to complete its under construction leasing assets (five retail malls and two commercial assets). Pre-leasing trend both in terms of occupancy ramp-up and rent for these assets has been healthy.

-       We believe that PHNX provides a unique way to play India’s retail growth story due to its (a) strong track record of execution and operations, (b) scalability and (c) robust cash generation.

-       We value PHNX’s retail assets based on DCF-based NAV approach, assuming a cap rate of 8.0% and a discount rate of 12.5%. Maintain Buy with an SOTP-based target price of INR1,015.