Phoenix Mills stock down 20% from its one-year peak; Motilal Oswal says time to buy, sees a 31% upside potential

Updated: 22 Mar 2023, 09:01 AM IST

Phoenix Mills is a leading retail-led mixed-use asset developer, that operates 11 malls across eight cities in India and three new malls are currently under construction including one in Kolkata (ninth city), Motilal Oswal highlighted.

As of March 2023, Phoenix Mills has 11 operational malls.

Brokerage firm Motilal Oswal Financial Services has initiated coverage on Phoenix Mills stock with a buy call and a target price of 1,700, implying a 31 percent upside potential.

The brokerage firm is upbeat about the stock due to the company's bright growth prospects.

Phoenix Mills is a leading retail-led mixed-use asset developer, that operates 11 malls across eight cities in India and three new malls are currently under construction including one in Kolkata (ninth city), Motilal Oswal highlighted.

Moreover, the brokerage firm added that Phoenix Mills also operates a few grade-A standalone offices in Mumbai and Pune and is aiming to build offices on top of or adjacent to its malls to improve the yield on land. The company has also built one hotel each in Mumbai and Agra and residential projects in Bengaluru and Chennai.

The brokerage firm expects the company to deliver 34 percent CAGR in EBITDA of the rental portfolio over FY23-25.

The stock hit its 52-week high of 1,620 on November 9, 2022, on BSE. As of March 20, 2023 closing of 1,293.70, the stock is down 20 percent from its one-year peak.

Phoenix Mills stock price in the last one year.

Investment rationale by Motilal Oswal

1. Consumption growth back on track: As per the brokerage firm, consumption across Phoenix Mills' mall portfolio reported a steady recovery post the second wave of Covid until Jan’22, which was affected due to a minor scare of a Covid third wave. Since Mar’22, the growth is back on track with consumption consistently being 20-25 percent higher than pre-Covid levels.

As organised retail penetration increases further due to higher disposable income, shopping malls are likely to benefit the most from this shift. As a result, consumption in malls across the top eight cities is expected to report a 29 percent CAGR over FY23-28, as per Knight Frank, said Motilal Oswal.

2. Healthy retail portfolio outlook: As per Motilal Oswal, as of March 2023, Phoenix Mills has 11 operational malls with a total leasable area of about 9msf and with three more malls (Pune, Bengaluru, and Kolkata) under construction, its leasable area is expected to increase to 13msf by FY25.

Motilal believes with this expansion, the company will have a presence in six out of the top eight cities and three tier-two cities, and will be a big beneficiary of the consumption boom.

"The company has reported a healthy pre-leasing of nearly 90 percent for its malls which are expected to be delivered in FY24, and as these malls turn operational, the rental income is expected to report a 32 percent CAGR over FY23-25 to 2,200 crore," said Motilal Oswal.

3. Mixed-use strategy to improve blended yields: Motial highlighted that under its retail-led, mixed-use strategy, Phoenix Mills is also building and operating offices on top of/adjacent to its existing and upcoming malls to improve the blended yield of the assets.

"With the land already paid out for, the office assets will generate 20-25 percent yield on construction versus 15-20 percent for a mall," Motilal Oswal said.

"The company is planning to build about 5msf of office space across its retail assets over the next five years to increase its office portfolio to nearly 7msf. These assets are expected to incrementally contribute nearly 800 crore of rental revenue once stabilised, leading to a CAGR of 32 percent in office rentals to 1,000 crore over FY22-FY30," said Motilal Oswal.

4. Backing from marquee partners to enable continued scale-up: The brokerage firm underscored that in FY18, Phoenix Mills partnered with CPPIB (Canada Pension Plan Investment Board) for a retail-led, mixed-use asset platform that helped the company gear up for its next leg of growth.

In FY22, the company entered into a 1500 crore platform with GIC.

"In CPPIB and GIC, Phoenix Mills has found its right partners with aligned long-term vision, and hence, it targets to develop a 1-msf mall every year," said Motilal Oswal.

"Under this growth strategy, the company will deliver a mall in Kolkata in FY25 and has already signed up land for a mall in Surat. Additionally, the company is in active discussion at four of the five priority markets viz; Thane, Navi Mumbai, Chandigarh, Jaipur and NCR," Motilal Oswal said.

Motilal underscored that over the last 24 months, the company has raised 4900 crore of capital from QIP and infusion from both CPPIB and GIC, which is yet to be fully deployed and will act as a war chest for the company to meet its 2000 crore of pending capex and growth capital requirements.

5. Valuation and view: " Based on SoTP, we value the company at 29,200 crore, net off 1,300 crore of debt, or per share price of 1,700, indicating an upside potential of 31 percent," said Motilal Oswal.

"Healthy pre-leasing of its upcoming malls provides strong near-term visibility on rental growth. Hence, if we push up the valuation base at the end of FY25 (two-year return), taking into account stabilized rental run-rate for the upcoming malls and no pending capex, our valuation for the retail segment increases to 29000 crore from 23900 crore in the base case. Thus, our target price increases to 2,000, indicating a 54 percent upside potential," Motilal Oswal said.

According to a MintGenie poll, an average of 14 analysts have a ‘buy’ call on the stock.

Disclaimer: The views and recommendations given in this article are those of the broking firm. These do not represent the views of MintGenie.

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First Published: 22 Mar 2023, 09:01 AM IST