Published on 28/05/2019 10:04:46 AM | Source: Motilal Oswal Securities Ltd

Buy Phoenix Mills Ltd For The Target Rs.785 - Motilal Oswal

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Transient moderation in consumption

* Kessaku revenue recognition drives outperformance:

Revenue grew 66% YoY to INR7,232m (our estimate: INR4,839m) in 4QFY19, driven by revenue recognition of INR3,170m in Kessaku, Bengaluru. EBITDA increased 74% YoY to INR3,771m (our estimate: INR2,419m), with the margin expanding 260bp YoY to 52% (our estimate: 50%). Adj. PAT grew over 100% YoY to INR1,879m, higher than our estimate of INR655m, led by profits from kessaku recognition. For FY19, revenue grew 22% to INR19.8b, EBITDA increased 28% to INR9.9b and PAT was up 97% to INR4.7b.


* Retail – transient moderation in consumption:

Consumption increased 6% YoY to INR16,265m in the quarter. Rental income rose 9% YoY to INR2,499m, while EBITDA increased strongly by 24% YoY to INR2,375m. Consumption growth moderated at HSP (-1% YoY) on account of (a) infrastructure upgrades (metro construction) in the neighborhood causing visitor inconvenience, (b) two key tenants (PVR, lifestyle) undertaking refurbishment work and (c) tenant churn resulting in sluggish growth, temporarily hurting footfall.


* Concall highlights:

(1) Home accessories, jewelry and watches, electronics, cosmetics and F&B grew faster than hypermarkets, books, gifts and toys. (2) Additional 1.6msf can be built at HSP (0.5msf mall, 1.1msf office space); however, this is in the planning stage and finalization will take ~12 months.


* Valuation view:

We believe that PHNX offers a unique way to play India’s retail growth story due to its (a) strong track record of execution and (b) scalability, as reflected in the line-up of five new under-construction malls and (c) robust cash generation. We value PHNX’s retail assets based on the DCF-based NAV approach, assuming a cap rate of 8.5% (HSP - 8%) and a discount rate of 13.5%. We maintain Buy with an SOTP-based TP of INR785 (upside 27%).


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