The Phoenix Mills - Potential fund infusion may usher in growth - ICICI Securities

The Phoenix Mills (PHNX) has informed exchanges that the listed entity along with few of its SPVs has signed a non-binding term sheet with GIC Private Equity (PE) for the formation of a retail-led mixed-use platform. The assets include PHNX's Mumbai (Kurla) and Pune malls and Mumbai (Kurla) offices having a total leasable area of 3.36msf (2.33msf of malls and 1.03msf of offices) that generated FY20 NOI of Rs3.7bn. The indicative pre-money EV for these assets is Rs56-57bn or an equity value of Rs40-41bn (debt of Rs16bn as of Mar-20). This implies a cap rate of 6.6% at pre-Covid rentals which is commendable given 50% waiver in FY21E mall rentals. GIC PE has the option to initially acquire an equity stake of 26% in these SPVs and increase it to 35% in another 12 months which implies a potential equity investment of Rs10-13bn. We retain our BUY rating with a revised SoTP based target price of Rs804/share (earlier Rs780) as we roll forward to FY22E NAV.

- Potential fund infusion may usher in growth: The indicate pre-money EV for the potential transaction of Rs56-57bn (Isec EV of Rs42bn) implies a cap rate of 6.6% (6.1% for malls and 8.5% for offices) based on combined pre-Covid FY20 Net Operating Income (NOI) of Rs3.7bn. In our view, this is commendable considering that ready Grade A office assets in India command a cap rate of ~8% and is similar to the cap rate of 6.3% which PHNX achieved for the platform deal signed with CPPIB in April 2017. GIC PE may invest between Rs10-13bn in PHNX's SPVs (pre-money equity value of Rs40-41bn) which may further strengthen PHNX's balance sheet as it has cash reserves of Rs18.5bn as of Sep-20.

- Festive season sees surge in consumption: While Q2FY21 consumption was at 40-55% of previous year levels, consumption has picked up in Q3FY21 with the first four weeks of Nov-20 seeing consumption rising to 87% of the same period last year driven by increase in mall operating hours, resumption of F&B and onset of festive season. ~93% of PHNX's total area across malls is now operational. While rental waivers may result in PHNX incurring a 50% rental loss of Rs5.0bn in FY21E, the company expects rentals to revert back to 90% minimum guarantee from Q1FY22 as consumption stabilises.

- 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.689.5 as compared to the previous close of Rs. 682.55. The total number of shares traded during the day was 14607 in over 1545 trades.

The stock hit an intraday high of Rs. 703.05 and intraday low of 671.95. The net turnover during the day was Rs. 10109141.

Source : Equity Bulls

Keywords