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‘Buy’ Phoenix Mills: Execution is proceeding as per plan

Motilal Oswal

PHNX is well on track to achieving
11-12msf portfolio by FY23. Currently, the company has a retail portfolio of 5.9msf (operational) and 4.6msf (under construction), with plans to add another 1-2 new assets taking the total portfolio to 11-12msf by FY23. The company is developing five new malls three under the Canada Pension Plan Investment Board (CPPIB) platform (PMC Wakad, PMC Hebbal, and PMC Indore), Palladium Ahmedabad (a 50:50 alliance with BSafal group), and PMC Lucknow (100% self-owned).

Construction at the five malls is well underway/likely to commence soon. For two malls, the company has acquired under-construction retail development, with construction ongoing at a rapid pace; operations are expected to commence by 2HFY20 (PMC Lucknow) and FY21 (PMC Indore). Excavation at PMC Hebbal is expected to commence anytime during Feb 19, while for PMC Wakad, excavation began on 7 Feb 19. Construction at Palladium Ahmedabad PHNX s third Palladium mall after Mumbai and Chennai commenced in Jan 19, and it is expected to start operations in FY22.

Total ongoing investment towards construction of malls and a new office asset (Fountainhead, Pune) is
~Rs 56.8 bn; of this, the company has already invested Rs 22.3 bn; the balance Rs 34.5 bn (Rs 20 bn under the CPPIB platform) will be invested over the next couple of years till FY23.

We believe that PHNX is a unique play in India s retail growth story due to its (a) experienced management with successful track record of execution,
(b) scalability as reflected in the line-up of five new under-construction malls, and (c) robust cash generation. We value PHNX s retail assets based on DCF-based NAV approach, assuming a cap rate of 8.5% (HSP – 8%) and a discount rate of 13.5%. We maintain Buy with an SOTP-based TP of Rs 708 (upside 20%).

On track to achieve 11-12msf operational retail portfolio target by FY23
PHNX currently has an operational retail portfolio of 5.9msf. During Aug 17- Jul 18, it closed five acquisitions (a) land parcels in Pune, Bangalore and Ahmedabad, and (b) under-construction retail assets in Lucknow and Indore. These acquisitions take the under-development retail leasable portfolio to 4.6msf; the company also has mixed use development potential on most of these assets.
It has plans to add more 1-2 new assets.

Progress on under-development assets PMC Wakad, Pune: Excavation commenced on 7th Feb 19 and the mall is expected to start operations in FY23. It has received the environmental clearance and consent to establish.

PMC Hebbal, Bengaluru: Excavation will commence in Feb 19 and the mall is expected to commence operations during FY23.It has obtained the environmental clearance and the BDA approval; the BBMP approval to commence construction has also been obtained.

PMC Indore: It is expected to commence operations in FY21; the revalidation of approvals is in process.

PMC Lucknow: Construction is in progress with all requisite approvals in place. Already 60% of the leasable area is tied up and operations are expected to start during 2HFY20.

Palladium Ahmedabad: Excavation commenced in Jan 19 and the mall is expected to be operational during FY22. It has received environmental clearances and construction commencement approvals.