Buy Phoenix Mills, target price Rs 800: ICICI Securities

ICICI Securities has given a buy rating to The Phoenix Mills with a target price of Rs 800. The share price moved down by -2.28 per cent from its previous close of Rs 569.10. The stock’s last traded price is Rs 556.10.

While mall closures across India from mid-March 2020 have led to transient pain for Phoenix Mills, the brokerage expects gradual improvement from the second half of FY21 and expects a strong recovery with FY22E rental income of Rs 11.9 billion against Rs 10 billion in FY20.

The brokerage retains its buy rating with a revised target price of Rs 800/share (earlier Rs 865/share) based on 1 time NAV factoring in one-time 40 per cent like-for-like rental income loss of Rs 4 billion in FY21E (earlier Rs 2.5 billion) and higher cap rate of 9 per cent vs. 8 per cent earlier.

The brokerage expects Phoenix Mills to achieve a 13 per cent rental income CAGR over FY20-25E and remains positive on PHNX’s long-term growth story as malls in India have now evolved into lifestyle destinations and present a clean, safe and easily accessible entertainment option.

Investment Rationale

The brokerage likes Phoenix Mills because it has a strong brand recall and is the market leader in malls across India. It also has a strong pipeline of projects and it is a derivative play on the Indian consumption story.

The brokerage valued Phoenix Mills on SoTP basis with a combination of discounted cash flow based NAV on FY20E basis assuming a cap rate of 9 per cent (earlier 8 per cent) for rental assets. It retains a buy rating with a revised target price of Rs800/share (earlier Rs865/share) based on 1 times FY20E NAV factoring in one-time like-for-like loss of Rs 4 billion of rental income in FY21 (earlier Rs 2.5 billion) across existing malls and 6-9 months delay in under construction assets.

Key upside risks are higher than expected rental income growth across operational malls and under-construction malls achieving higher than estimated rental income on commencement of operations.

Key downside risks are a slowdown in discretionary spend hurting consumption and rental growth owing to Covid-19 induced slowdown, competing malls set to become operational near High Street Phoenix (Oberoi Worli Mall) in FY22-23E and online retail channels.



Financials

For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 399.24 crore, down -21.99 per cent from last quarter sales of Rs 511.79 crore and down -44.80 per cent from last year's same quarter sales of Rs 723.23 crore. The company reported net profit after tax of Rs 48.26 crore in the latest quarter.

Promoter/FII Holdings

Promoters held 59.11 per cent stake in the company as of March 31, 2020, while FIIs held 25.74 per cent, DIIs 10.69 per cent and public and other 4.26 per cent.