The Phoenix Mills - Fortress balance sheet, long term story intact - ICICI Securities

The Phoenix Mills (PHNX) has delivered 15% consumption CAGR and 14% rental income CAGR over FY13-20 prior to COVID-19 induced mall closures across India from mid-March 2020. While FY21 will be a tough year with an estimated 50% rental income loss, the recent QIP fund raise of Rs11bn and all nine operational malls reopening in Q2FY21 are directionally positive. We expect gradual improvement from H2FY21 and expect a strong recovery with FY22E rental income of Rs11.0bn vs. Rs10.0bn in FY20. We retain our BUY rating with a revised target price of Rs780/share (earlier Rs800) factoring in the recent QIP. We expect PHNX to achieve a 13% rental income CAGR over FY20-25E and remain positive on PHNX's long-term growth story as a proxy play on discretionary consumption.

- Operational performance to sequentially improve: With mall shutdowns across cities from mid-March 2020, PHNX's Q1FY21 mall rental collection stood at Rs843mn or ~29% of like-for-like rentals achieved in Q1FY20. However, with all of PHNX's nine completed malls having reopened as of 1st September 2020, rental income is expected to sequentially pick up from Q2FY21, subject to rental waivers/deferrals given to various retailers. As per PHNX, they have 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 has moved from a 90% minimum guarantee and 10% revenue share model to a 30-40% revenue share until consumption returns to 70-80% of pre-COVID levels.

- Fortress balance sheet mitigates risk and leaves room for growth: As of June 2020, PHNX had gross debt of Rs47.5bn with cash of Rs7.5bn (net debt of Rs40.0bn). In August 2020, PHNX has raised equity of Rs11bn through the QIP route and currently has estimated cash reserves of ~Rs19bn. The healthy cash reserves will enable PHNX to tide over any short-term COVID-19 induced pain and also gives the company to pursue further asset acquisitions in a stressed market.

- Estimated rental income CAGR of 13% over FY20-25E: At a portfolio level, PHNX will have ~11msf operational mall space by FY23-24E (6.9msf currently operational including Palassio, Lucknow). After accounting for COVID-19 induced revenue loss of Rs5.0bn in FY21, 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 Rs19.2bn of estimated gross rental income in FY25E, PHNX share is ~75% or Rs14.4bn.

Shares of The Phoenix Mills Ltd was last trading in BSE at Rs.649.6 as compared to the previous close of Rs. 659.85. The total number of shares traded during the day was 5902 in over 447 trades.

The stock hit an intraday high of Rs. 659.7 and intraday low of 643.3. The net turnover during the day was Rs. 3853328.

Source : Equity Bulls

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