Published on 6/08/2020 12:36:40 PM | Source: ICICI Securities Ltd

Buy The Phoenix Mills Ltd For Target Rs.800 - ICICI Securities

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Lucknow mall opening to drive growth

Phoenix Mills’ (PHNX) Palassio mall located in the city of Lucknow, Uttar Pradesh in North India has opened on 8th July, 2020. The mall has 0.95msf leasable area and is 100% leased. The mall has opened with 50% of permissible area or ~150 stores (excludes multiplexes and few other tenants) with another 30% of area under fit-outs. PHNX has given a 50% rental waiver for July-September 2020 considering COVID-19 impact and we expect Palassio mall to achieve Rs0.5bn of rental income in FY21E considering rental waivers but expect the mall to achieve rental income of over Rs1bn in FY22E as occupancy and consumption sees a ramp-up. We expect PHNX to achieve a 13% rental income CAGR over FY20-25E and reiterate our BUY rating with a SOTP based target price of Rs800/share .

* Lucknow Mall opening a positive sign: PHNX’s Palassio, Lucknow mall has opened on 8th July, 2020 with 50% of permissible area or ~150 stores (excludes multiplexes and few other tenants) with another 30% of area under fit-outs currently. The multiplex is also ready but will open after Central and State Government directives to commence operations. The mall has over 300 different retailers with blended rentals in excess of Rs100/psf/month. Prominent retailers at Palassio include brands like H&M, Aldo, Mango, Bath & Body Works, Steve Madden, The Collective, Under Armour, Brooks Brothers, Armani Exchange, Gas, Cover Story, Charles & Keith and Starbucks. Anchor tenants in the mall include Lifestyle, Westside, Marks & Spencer, Shoppers Stop, Pantaloons, Max and Big Bazaar.

* Clarity has emerged on rental waivers in operational malls: PHNX has reached an agreement to waive 50% of rent for lockdown period with 75-80% of retailers (except for multiplexes). Further, post malls opening after lockdown, PHNX would consider a waiver of 30% on minimum guarantee for 3-6 months. We have assumed that PHNX will lose Rs4.0bn or 40% of FY20 rental income in FY21 (on like-for-like basis) and expect PHNX to clock FY21E rental income of Rs6.6bn.

* Estimated rental income CAGR of 13% over FY20-25E: At a portfolio level, PHNX will have ~11msf operational mall space by FY23-24E (5msf currently excluding Palassio, Lucknow). After accounting for COVID-19 induced revenue loss, we expect PHNX to achieve a 13% rental income CAGR (ex-CAM) at a portfolio level over FY20-25E which may result in PHNX clocking over Rs19bn of rental income in FY25E vs. ~Rs10bn in FY20. Of the Rs19.0bn of estimated gross rental income in FY25E, PHNX share is ~76% or Rs14.5bn.


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