We hosted Shishir Shrivastava, Managing Director of Phoenix Mills, for a deep- dive chat into the DNA of the company, its evolution and vision beyond the visible future. Key takeaways: Company believes its core vision is to create iconic city-centric, mixed-use developments with retail as the core and offices and hotels as complementary assets. However, post the pandemic, it is looking to evaluate diversification into warehouses and residential assets by leveraging its land acquisition, retailer relationships and hospitality skills.
The company will continue to deploy capital in new malls rather than go for asset-light operatorship roles. They believe that their ability to take projects with large capital infusion, invest four-year plus gestation time, and focus on mall curation, and their steady leadership team set them apart. Partnership with global sovereign funds like CPPIB and GIC not only gives them access to funds but also insights on global practices which help improve performance. They reiterated that lessons from the past suggest that they will keep leverage low, partner selectively, and build bigger malls.
Near-term consumption story remains intact: Data from April-May 2022 suggest that consumption is now running at 106-130% for its major malls. We expect PML to add two new malls and the expansion of its High Street Phoenix mall will likely add c28% to its leasable area. This will be followed by addition of another c23% to its expanded leasable mall area. Beyond this, we expect further addition in office leasable area till FY26e. We conservatively expect the firm to stabilise by FY28e and generate portfolio EBITDA of Rs 28.4 bn from a FY22 exit run-rate level of Rs 11 bn.
Investment view and valuation: We believe PML is now set to resume its growth trajectory and capture the upside. Backed by its strong balance sheet and partners, we expect PML to benefit from distressed acquisition opportunities and create a more formidable portfolio, which should increase its bargaining power with retailers, reduce individual asset risk, and, generate higher shareholder returns. We adjust our earnings estimates to account for the acquisition of 50% stake in Chennai Mall and the recent consumption trends. We use a DCF-based SOTP approach to value the cash flows from assets using a WACC of 10.5% to arrive at our TP as of end-Jun’22 (earlier Mar’22). Our new TP is Rs 1,310 (previously Rs 1,250), implying c21% upside; we thus reiterate our Buy rating.