BUY CMP 395.20 Target Price 430.00 THE PHOENIX MILLS LTD Result Update (PARENT BASIS): Q3 FY15 FEBRUARY 21 st 2015 ISIN: INE211B01039 Index Details Stock Data Sector Realty BSE Code 503100 Face Value 2.00 52wk. High / Low (Rs.) 415.80/2123.00 Volume (2wk. Avg. Q.) 2848 Market Cap (Rs. in mn.) 57266.46 Annual Estimated Results (A*: Actual / E*: Estimated) YEARS FY14A FY15E FY16E Net Sales 2948.02 3182.62 3405.40 EBITDA 2730.72 3006.96 3285.24 Net Profit 1525.55 1468.66 1589.85 EPS 10.53 10.14 10.98 P/E 37.52 38.98 36.01 Shareholding Pattern (%) 1 Year Comparative Graph THE PHOENIX MILLS LTD BSE SENSEX SYNOPSIS The Phoenix Mills Ltd. began operations as a textile manufacturing in 1905 & later entered the growing real estate market in 1987 at Mumbai. The company s net sales grew by 7.38% y-o-y in 3 rd quarter of FY15 and stood at a record Rs. 811.63 million compared to Rs. 755.86 million in the corresponding quarter last year. For Q3 FY15, Net profit also recorded at Rs. 380.71 million a as against Rs. 378.25 million for Q3 FY14. Operating profit or EBIDTA ramps up by 11.41% y- o-y to Rs. 773.06 million in Q32 FY15 from Rs. 693.96 million in Q3 FY14. In Q3 FY15, other income has grew by 31.21% y-o-y to Rs. 258.03 million from Rs. 196.65 million in the corresponding quarter of previous year. For the nine months ended of FY15, the company registered a growth of 8.58% in Net sales to Rs. 2346.64 million from Rs. 2161.26 million for the nine months ended of FY14. Profit before Interest, Tax and Dep grew by 9.35% to Rs 2225.25 million for the end of 9M FY15 from Rs 2035.06 million for the end of 9M FY14. The Company has investment if Rs. 579.27 million in the equity shares of Entertainment world Developers Ltd (EWDL) and Rs. 1000.00 million in FCDs Treasure World Developer Pvt Ltd (TWDPL) subsidiary of (EWDL). Net Sales and PAT of the company are expected to grow at a CAGR of 8% and 6% over 2013 to 2016E respectively. PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%) The Phoenix Mills Ltd. 395.20 57266.46 10.53 37.52 3.06 110.00 DLF Ltd. 151.30 269605.60 4.83 31.33 1.62 100.00 Sobha Ltd. 441.35 43280.50 19.72 22.38 1.93 70.00 Mahindra Lifespace Developers Ltd. 504.70 20698.90 56.01 9.01 1.82 60.00
QUARTERLY HIGHLIGHTS (PARENT BASIS) Results updates- Q3 FY15, Rs. In millions Dec-14 Dec-13 % Change Net Sales 811.63 755.86 7.38 PAT 380.71 378.25 0.65 EPS 2.63 2.61 0.61 EBITDA 773.06 693.96 11.40 Phoenix Mills Ltd. has achieved a turnover of Rs. 811.63 million for the 3 rd quarter of the financial year 2014-15 as against Rs. 380.71 million in the corresponding quarter of the previous year. The company has reported an EBITDA of Rs. 773.06 million an increased by 11.40% over the prior period of previous year. During the quarter, net profit is at Rs. 380.71 million against Rs. 378.25 million in the corresponding quarter of the previous year. The company has reported an Earning per Share of Rs. 2.63 for the 3 rd quarter as against an Earning per Share of Rs. 2.61 in the corresponding quarter of the previous year. Break up of Expenditure During the quarter, total expenditure rose up by 18% mainly on account of increased Electricity expenses by 7% and Depreciation & Amortization Expense by 30% along with other expenditure by19% are the main attribute for the growth of expenditure. In Q3 FY15, total expenditure stood at Rs. 372.99 million as against Rs. 317.14 million in Q3 FY14. Break up of Expenditure Rs. Millions Q3 FY15 Q3 FY14 Employee Benefit Expenses 21.6 18.99 Electricity Expenses 94.24 87.96 Depreciation & Amortization Expense 76.39 58.59 Other Expenses 180.75 151.6
Company Profile The Phoenix Mills Ltd. began operations as a textile manufacturing in 1905 and gradually the company entered in growing real estate market in 1987 at Mumbai with High Street Phoenix emerging as the most frequented destination in the city. Phoenix Mills Ltd is poised to carve a niche in the booming Indian real estate sector. The Phoenix Mills Limited (PML) specialises in the ownership, management and development of iconic large format retail-led mixed use properties that includes shopping, entertainment, commercial, residential and hospitality assets. Currently the company has interests in 10 irreplaceable large scale retail assets, making up close to 7.0 million sq. ft. across 8 Indian city centers. With the launch of its prime residential and commercial properties in Bengaluru, Chennai and Pune, and with commencement of its flagship hotel Palladium Hotel in Mumbai, are emerging as a leading realty company of India that is both highly integrated and asset-class diversiied at the same time. Core Business Retail: Build and Lease The company has a strategic alliance with the Pantaloons Group India s fore-runner in the retail segment through their brands Pantaloon and Big Bazaar, and a significant stake in Galaxy Entertainment Corp. Ltd, a publicly listed company that specializes in setting up Leisure & Entertainment Centers, as well as food courts/kiosks across the country. High Street Phoenix Phoenix Market City - Mumbai Phoenix Market City - Pune Phoenix Market City Bangalore Phoenix Market City - Chennai Mall Hospitality: Build and Operate India's rich culture and heritage, ancient history and monuments, unity in diversity, colorful people & festivals are some of the reasons that India is one of the most attractive tourist destinations in the world. In an attempt to bridge this demand-supply gap, the Market Cities retail destinations are ideal locations for hotels, catering to business travelers as well as tourists. The company is handling its projects in Mumbai, Pune, Chennai, Bangalore & Agra in the segment. Entertainment The Indian entertainment industry is estimated to grow at a booming 18 per cent per annum, computed with a target of 45,000 crores. The Phoenix Mills Limited group joined hands with Galaxy Entertainment in 1998 and together they have set a new benchmark for leisure and entertainment in Mumbai. The 20 alley Bowling
Co. was the first of its kind in Mumbai and still remains one of the largest and most popular destinations in the city. Today, multiplexes, gaming arcades, food courts and shopping centers have made malls a destination for myriad consumers, with varying needs and interests. Residential & Commercial: Build and Sell The Phoenix Mills Limited, in all projects, pays special attention to the consumer's/ retailer's needs. The commercial office blocks have been incorporated into the market city projects. Commercial office blocks of approximately 3000 sq ft are an integral part of all the projects, from High Street Phoenix to all the Market city projects. These projects are in prime locations, with easy connectivity to important city centers, airports & railway stations, making the development an ideal location for office space. The office blocks have latest facilities & amenities including parking, internet & other telecommunication connections, electricity, illumination, etc. Group Companies EWDPL EWDPL is a Tier II city centric retail mall, mixed use developer, currently engaged in the construction and operation of mixed-use retail centers and townships. Big Apple Big Apple Real Estate Pvt. Ltd was formed as a holding for development of Malls, Multiplex's and other real estate ventures, in India. The Company has formed to develop malls by brand name Phoenix United across north India, particularly in UP covering cities including Lucknow, Agra, Bareilly & Varanasi. GEOGRAPHICAL - SPREAD Strong presence in metropolitan and Tier I cities like Mumbai, Pune, Bengaluru & Chennai. Spreading to Tier II, Tier III cities by partnering with experienced and reputed developers.
FINANCIAL HIGHLIGHT (PARENT BASIS) (A*- Actual, E* -Estimations & Rs. In Millions) Balance Sheet as at March31, 2013-2016E THE PHOENIX MILLS LIMITED FY-13A FY-14A FY-15E FY-16E I EQUITY AND LIABILITIES A) Shareholder's Funds: a) Share Capital 289.69 289.69 289.81 281.81 b) Reserves and Surplus 17396.17 18547.90 19255.57 20410.90 B) Non Current Liabilities: Sub-Total Net worth 17685.86 18837.59 19545.38 20692.71 a) Long term borrowing 2067.00 3806.81 5615.04 6962.66 b) Other Long term liabilities 770.85 701.40 970.74 1116.35 c) Long term Provisions 3.64 2.00 3.86 5.40 C) Current Liabilities: Sub- Total Non Current liabilities 2841.49 4510.21 6589.64 8084.41 a) Short term borrowings 120.64 391.80 429.02 467.63 b) Trade payables 440.61 491.20 530.50 562.33 c) Other Current liabilities 1124.75 1583.80 1868.88 2055.77 d) Short term Provisions 465.55 380.00 121.60 79.04 Sub-Total Current Liabilities 2151.55 2846.80 2950.00 3164.77 TOTAL EQUITY AND LIABILITIES (A + B + C) 22678.90 26194.60 29085.02 31941.89 II ASSETS D) Non-Current Assets: Fixed Assets i. Tangible assets 4424.55 4093.00 3929.28 4007.87 ii. Capital Work in Progress 1089.75 1227.50 1330.61 1410.45 a) Sub-Total Fixed Assets 5514.30 5320.50 5259.89 5418.31 b) Non Current Investments 9386.25 11110.00 12776.50 14501.33 c) Long Term loans and advances 3888.11 6498.60 7115.97 7685.24 d) Deferred Tax Asset 30.21 3.50 14.88 19.64 e) Other non-current assets 5.08 2.80 3.61 4.44 E) Current Assets: Sub-Total Non-Current Assets 18823.95 22935.40 25170.84 27628.96 a) Trade receivables 294.17 253.00 280.83 308.91 b) Cash and Bank Balances 223.23 247.30 326.44 394.99 c) Short-terms loans & advances 3188.80 2484.10 2720.09 2964.90 d) Other current assets 148.75 274.80 586.82 644.13 Sub- Total Current Assets 3854.95 3259.20 3914.18 4312.93 TOTAL ASSETS (D+E) 22678.90 26194.60 29085.02 31941.89
Annual Profit & Loss Statement for the period of 2013 to 2016E Value(Rs.in.mn) FY13A FY14A FY15E FY16E Description 12m 12m 12m 12m Net Sales 2706.01 2948.02 3182.62 3405.40 Other Income 565.28 799.97 988.20 1136.44 Total Income 3271.29 3747.99 4170.82 4541.84 Expenditure -920.53-1017.27-1163.86-1256.59 Operating Profit 2350.76 2730.72 3006.96 3285.24 Interest -264.96-444.09-709.43-787.47 Gross profit 2085.80 2286.63 2297.53 2497.78 Depreciation -275.40-254.38-307.08-334.72 Profit Before Tax 1810.40 2032.25 1990.45 2163.06 Tax -471.61-506.70-521.78-573.21 Net Profit 1338.79 1525.55 1468.66 1589.85 Equity capital 289.69 289.69 289.81 289.81 Reserves 17291.30 18444.03 19255.57 20410.90 Face value 2.00 2.00 2.00 2.00 EPS 9.24 10.53 10.14 10.97 Quarterly Profit & Loss Statement for the period of 30 th June, 2014 to 31 st Mar, 2015E Value(Rs.in.mn) 30-Jun-14 30-Sep-14 31-Dec-14 31-Mar-15E Description 3m 3m 3m 3m Net sales 756.14 778.87 811.63 835.98 Other income 219.53 230.94 258.03 279.70 Total Income 975.67 1009.81 1069.66 1115.68 Expenditure -258.08-275.21-296.60-333.97 Operating profit 717.59 734.60 773.06 781.71 Interest -133.54-178.87-205.71-191.31 Gross profit 584.05 555.73 567.35 590.40 Depreciation -74.98-74.74-76.39-80.97 Profit Before Tax 509.07 480.99 490.96 509.43 Tax -156.97-116.00-110.25-138.56 Net Profit 352.10 364.99 380.71 370.86 Equity capital 289.69 289.69 289.81 289.81 Face value 2.00 2.00 2.00 2.00 EPS 2.43 2.52 2.63 2.56
Ratio Analysis Particulars FY13A FY14A FY15E FY16E EPS (Rs.) 9.24 10.53 10.14 10.97 EBITDA Margin (%) 86.87 92.63 94.48 96.47 PBT Margin (%) 66.90 68.94 62.54 63.52 PAT Margin (%) 49.47 51.75 46.15 46.69 P/E Ratio (x) 42.76 37.52 38.99 36.02 ROE (%) 7.61 8.14 7.51 7.68 ROCE (%) 13.28 13.02 12.95 12.87 Debt Equity Ratio 0.12 0.22 0.31 0.36 EV/EBITDA (x) 25.19 22.41 20.95 19.57 Book Value (Rs.) 121.38 129.34 134.88 142.86 P/BV 3.26 3.06 2.93 2.77 Charts
OUTLOOK AND CONCLUSION At the current market price of Rs. 395.20, the stock P/E ratio is at 38.99 x FY15E and 36.02 x FY16E respectively. Earning per share (EPS) of the company for the earnings for FY15E and FY16E is seen at Rs.10.14 and Rs.10.97 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 8% and 6% over 2013 to 2016E respectively. On the basis of EV/EBITDA, the stock trades at 20.95 x for FY15E and 19.57 x for FY16E. Price to Book Value of the stock is expected to be at 2.93 x and 2.77 x respectively for FY15E and FY16E. We recommend BUY in this particular scrip with a target price of Rs.430.00 for Medium to Long term investment. INDUSTRY OVERVIEW Real Estate Sector The real estate sector in India plays a pivotal role in driving the nation s economy. It is the second largest employment provider after agriculture and contributes about 6.3% of GDP. he performance of the sector is driven by factors such as rapid urbanisation, positive demographics, migration from rural to urban, improving infrastructure, rising income levels and housing demand. he sector witnessed a challenging period during FY2013-14 marked by subdued sales and higher inventory levels which affected the cash lows and debt levels of the real estate companies. Political uncertainty, slower economic growth, sustained weakness of the Indian rupee, rising inflation and hardening interest rates led the buyers to postpone their buying decisions. Further, adverse regulatory developments and increased borrowing rates pushed up project costs and delayed execution time lines. he year, however, had one positive development on the reforms front, that of the passing of drat guidelines on Real Estate Investment Trusts (REITs). Going forward, as the economy is set for a revival in 2014, the real estate market is expected to see some traction on the demand and sales front. he focus of developers will be on timely completion of the on-going projects and rationalisation of the existing inventory in accordance with the improvement in demand-supply scenario. Residential Sector The residential sector faced several operational headwinds driven by weak demand, slow execution, reduced absorption and increased inventory levels. High prices also resulted in slowdown in sales. However, developers
could not reduce prices as their operations were impacted by high financing costs, increasing raw material costs and slow regulatory approvals. Despite the current backdrop, the housing demand in India continues to exceed the supply. Increasing disposable incomes, favourable demographics and rising urbanization will continue to drive the housing demand in India. According to a Cushman & Wakeield report, the current housing shortage in India stands at 62.5 mn units, and the demand is expected to increase by another 26.3 mn units by 2017. he demand-supply mismatch can be solved by introducing supportive regulations which will bring in transparency and streamline the approvals process, leading to faster execution and timely delivery of projects to the buyers. The Union Budget FY2014-15 has made some key proposals for the real estate sector, which are expected to benefit as mentioned below: Increase in interest subvention to Rs 0.20 mn from Rs 0.15 mn, overall limit of Section 80C exemption to Rs 0.15 mn from Rs 0.10 mn and overall income tax slab to Rs 0.25 mn from Rs 0.20 mn. his will improve the affordability, majorly benefitting buyers of residential units priced up to Rs 0.30 million which currently accounts for 12%-15% of the total upcoming supply in the top 10 cities. Allocation of Rs. 120 billion to the National Housing Board (NHB) for providing cheaper credit to poor and Rs 71 billion for development of 100smart cities. Over the longer term, development of smart cities will also provide opportunities to real estate developers. Easing of FDI regulations for of residential projects in form of reduction of investment threshold limit to $5 mn from $10 mn, reduction in minimum project size to 20,000 sq metres from 50,000 sq metres. Liberalising FDI norms could potentially improve the low of funds for developers who are currently facing liquidity crunch as it opens up new avenues for fund raising. Pass through status for Real estate investment trusts (REITs). Tax deficient REIT structure is likely to encourage the development of the REIT market. his will improve fund low of developers who have considerable lease income. As the economy is set for a revival in 2014, the real estate market is expected to see some traction on the demand and sales front. The focus of developers will be on timely completion of the on-going projects and rationalisation of existing inventory. With the revival in economic conditions, the commercial real estate is expected to witness robust demand as more number of companies expands their operations and office set-ups in suburban locations
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