02 August, 2014 12:01 IST
`Accumulate` Phoenix Mills; target Rs 231: Emkay
Source: IRIS Exclusive (25-JAN-12)
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Emkay Global Financial Services has maintained `Accumulate` on Phoenix Mills with a price target of Rs 231 as against the current market price (CMP) of Rs 189 in its report dated Jan. 24, 2012. The broking house gave the following rationale:

Standalone results has best quarter in the history, Rentals & Margins above expectations:

Revenue at Rs 505million grew by 12% YoY and was 4.4% above estimates as the rentals from area under negotiation started flowing and revenue sharing. Revenue sharing contributed Rs 45 million to the topline. EBITDA at Rs 373 million grew by of 16.5% YoY and was 8.9% above estimates. EBITDA margin at 73.9% increased by 282bps YoY and 381bps QoQ due to higher rentals and lower Other Expenditure. Interest cost increased to Rs 57million accounting for first full quarter after company borrowed Rs 2.4 billion in Q2FY12.

MC projects operational ramp up is slower than expected and lease status of the malls remained at pre-launch levels:

MC Mumbai and MC Bangalore saw improvement in the operation area post their opening in Q3FY12 while MC Pune had same occupancy rate of 65% as seen in Q2FY12. The pre-lease areas of all the MC Projects remain at the pre-opening levels of 70-75% and haven`t seen any new leasing. The management stated that it is a strategic decision of holding the additional leasing and expects 80-85% operational ramp up over
next 1-2 quarters.

MC Projects` retail space will not generate free cash until debt is repaid from cash generation of phase 2 of these projects:

MC Pune generated exit monthly EBITDA of Rs 37.9million. Monthly interest cost (@14%) on the borrowings of the same project comes to Rs 55million. This shows that at higher occupancy levels also the rentals for MC Pune project will only meet its interest obligations and will not generate any free cash. (See table in next page). We believe the similar situation holds across the MC projects wherein the debt reduction will not happen till the phase 2 of these projects comprising of office & residential space are monetized. PML has already provided capital in form of loans to these SPVs for developing the next phase and may also partner the SPVs in joint development of these assets through equity participation. We believe the debt reduction of these SPVs will take sometime as phase 2 developments and monetization is at least 12-18 months away.

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Phoenix Mills Limited   (Q,N,C,F)*

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