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ICICI Securities
Phoenix Mills (Buy)
CMP: ₹606.7
Target: ₹775
Phoenix Mills (PML) enjoys a quality retail asset portfolio of eight operational assets across top cities aggregating 5.9 million square feet (msf). It generated rental income of ₹867.8 crore in FY18. It plans to double its retail portfolio to 10.6 msf over the next four to five years leading to next leg of growth. Hence, we expect rental income to grow at 14.4 per cent CAGR to ₹1702.4 crore in FY18-23E.
In our view, PML would require equity commitment of about ₹1,710 crore during FY19E-23E to fund its current expansion plans. The recent CPPIB alliance bringing ₹1,662 crore money in the platform (₹938 crore are infused in FY19E) for expansion of its retail portfolio (Hebbal: 1 msf, Wakad:1 msf, Indore: 1.1msf) and operational cash flow worth ₹700-1,000 crore per annum are more sufficient to fund its expansion plans.
PML is currently trading at 14.1x FY20E EV/EBITDA. We like PML given its quality of retail asset portfolio, almost doubling its asset portfolio, which would drive the next leg of growth. In our view, PML’s current valuation reflects only operational retail and commercial asset valuation and does not assign any value to its expansion portfolio (about 24 per cent of our valuation). Hence, we initiate coverage on PML with SOTP based TP of ₹775/share.
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