[T.S.R:16782] Phoenix Mills: Are Broker Upgrades A Reason To Short-Sell Real Estate Stocks?

Phoenix Mills Ltd.'s (PML) Q3FY11 results were better than expectations in terms of the top line, and bottom line. Top line was up by 49% from Rs 301.84mn in Q2FY10 to Rs 450mn in Q3FY11. It was able to deliver higher revenue growth on account of higher area being operational.

Ø       Its high-end luxury retail outlet, Palladium, at High Street Phoenix (HSP), has started contributing in terms of revenues. The new stores opened in Q3 were likes of Veda, Armani, Levi's, Crew Republica etc.   

Ø       EBIDTA was up by 85% in absolute terms. Margins were firm at 72.6% against 71.6% as Palladium's operations has begun to stablise coupled with higher degree of operational efficiencies.

Ø       Depreciation was slightly higher on account of commissioning of palladium and parking facilities.

Ø       PAT was up 133% yoy at Rs 237.70mn.interest cost was down due to repayment of loans. on qoq basis, net profits were up 7%

Valuations

PML's business model looks quite robust and attractive in the long run, with the company's strategy to expand aggressively in retail-led mixed use development. Also, with its asset-heavy model at HSP, it has stable revenue streams in terms of lease rentals. We expect HSP to garner ~Rs 1.8bn (CAGR of 34%) as lease rentals in FY12 on a leasable 1.15msf. We have valued PML on a SOTP; stock at present valuation is trading at 31% discount to its FY12 SOTP of Rs 268. This discount provides an opportunity to BUY as its an low risk retail asset company, with a) its prime asset locations b) strong rental annuity of HSP which provides stable cash flows c) relatively insulated from the recent sector issues on policy front d) ~1.5 LSFT of space is under rental negotiation (which may provide ~Rs 100 mn additional rental per year from sept onwards). We upgrade to BUY.

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