CMP 210.60

Target Price 238.00

ISIN: INE211B01039

JANUARY 22nd

2014

THE PHOENIX MILLS LTD

Result Update: Q2 FY14

BUYBUYBUYBUY

Index Details

Stock Data

Sector Real Estate

BSE Code 503100

Face Value 2.00

52wk. High / Low (Rs.) 293.00/185.00

Volume (2wk. Avg. Q.) 736

Market Cap (Rs. in mn.) 30504.36

Annual Estimated Results (A*: Actual / E*: Estimated)

YEARS FY13A FY14E FY15E

Net Sales 2706.01 2936.02 3170.90

EBITDA 2350.76 2709.40 3026.17

Net Profit 1338.79 1565.53 1730.16

EPS 9.24 10.81 11.94

P/E 22.79 19.49 17.63

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 registered 6.42%

increase and stood at a record Rs. 707.16 million

from Rs. 664.50 million over the corresponding

quarter last year.

Net profit jumps to Rs. 365.28 million a growth of

10.60% in Q2 FY14 against Rs. 330.28 million in

the corresponding quarter of previous year.

Operating profit of the company was up by 9.57%

from Rs. 594.03 million in Q2 FY13 to Rs. 650.87

million in Q2 FY14.

The Company has acquired an additional 29.29%

stake in Offbeat Developers from IL&FS Financial

Services Limited, by which Company’s stake

increased to 53.23%.

Consumption at the mall increased to Rs 3,280

Mn and Average Trading Density increased to Rs

2,294 psf. pm. in Q2 FY14, a 16% y-o-y growth.

BYSI, Rosso Brunello, Aldo, Thomas Pink, Stuart

Weitzman and Royce are some of the stores

which opened in Q2FY14.

Net Sales and PAT of the company are expected to

grow at a CAGR of 17% and 18% over 2012 to

2015E 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. 210.60 30504.36 9.24 22.79 1.69 110.00

DLF Ltd. 156.70 343909.00 1.77 88.76 1.91 100.00

Sobha Developers Ltd. 303.25 29742.80 21.83 13.89 1.41 70.00

Mahindra Lifespace Developers Ltd. 400.00 16254.90 19.27 20.65 1.37 60.00

QUARTERLY HIGHLIGHTS (STANDALONE)

Results updates- Q2 FY14,

The Phoenix Mills Ltd. began operations as a textile manufacturing in 1905 & later entered the growing real

estate market in 1987 at Mumbai with High Street Phoenix emerging as the most frequented destination in the

city, a business model with annuity income from retail, healthy cash flows from sale of commercial & residential

assets & value generation through strategic investments. The company has reported its financial results for the

quarter ended 30 SEPTEMBER, 2013.

The company has achieved a turnover of Rs. 707.16 million for the 2nd quarter of the current year 2013-14 as

against Rs. 664.50 millions in the corresponding quarter of the previous year. The company has reported an

EBITDA of Rs. 650.87 millions an increased by 9.57% and a net profit of Rs. 365.28 million against Rs. 330.28

million reported respectively in the corresponding quarter of the previous year. The company has reported an

EPS of Rs. 2.52 for the 2nd quarter as against an EPS of Rs. 2.28 in the corresponding quarter of the previous year.

Break up of Expenditure

During the quarter, total expenditure in Q2 FY14 stood to Rs. 293.95 million as against Rs. 294.93 million in Q2

FY13.

Months SEP-13 SEP-12 % Change

Net Sales 707.16 664.50 6.42

PAT 365.28 330.28 10.60

EPS 2.52 2.28 10.60

EBITDA 650.87 594.03 9.57

Break up of Expenditure

Rs. Millions

Q2 FY14 Q2 FY13

Employee Benefit Expenses 20.25 22.14

Electricity Expenses 91.48 93.09

Depreciation & Amortization

Expense 65.32 68.74

Other Expenses 116.90 110.96

Latest Updates

• In Q2 FY14, the Company has acquired an additional 29.29% stake in Offbeat Developers from IL&FS

Financial Services Limited, pursuant to which Company’s stake in Offbeat Developers stands increased to

53.23%.

• Offbeat Developers private Limited has become a subsidiary of the company with effect from 14th October,

2013.

• Consumption at the mall increased to Rs 3,280 Mn in Q2 FY14, a 16% y-o-y growth and Average Trading

Density increased to Rs 2,294 psf. pm. in Q2 FY14, a 16% y-o-y growth

• High Street Phoenix rental increased to Rs. 216 psf. p.m. in Q2FY14, a 17% y-o-y growth.

• Vogue Fashion’s Night Out was hosted at Palladium Mall for the first time in Mumbai.

• BYSI, Rosso Brunello, Aldo, Thomas Pink, Stuart Weitzman and Royce are some of the stores which opened in

Q2 FY14 and Approx 128,000 sqft of area coming up for renewal in the next 12 months

TIER 2 AND TIER 3 DEVELOPMENTS

Big Apple Real Estate Pvt Ltd

• Investment of Rs. 1.1 bn for a 77.2% stake, the BARE operates its malls under the brand name of ‘Phoenix

United’

• 2 malls of 0.35 msf leasable area each are operational at Lucknow and Bareily since May 2010 and March

2012 respectively.

Entertainment World Developers Pvt Ltd

• Investment of Rs. 1,590 mn for 40.30% stake and develops retail, hospitality and residential projects across

emerging cities in central India. Operates under the brand name ‘TREASURE’.

• Four malls operational with 1.3 million sq ft of leasable area and additional 3 million sq ft leasable area

expected to be operational in the next 12-18 months.

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 Group is set to

take on the challenge of redefining life style in Indian cities. Be it mega retail malls, entertainment complexes,

commercial space or hospitality units, the Group are determined to make its presence felt in India.

It has become the model for development of shopping & entertainment hubs across the country. The plan

includes retail units, entertainment complexes, commercial units, hotels, parking and residential complexes. The

Group has been a pioneer in converting mill land into modern, multi-use integrated property. High Street

Phoenix was the first consumption center developed in India. The complex has been developed on 1.5 million

square feet of space and houses retail and entertainment, commercial and residential complexes.

The Group plans to foray into developing real estate in eight cities measuring a total of 214 lakh square feet.

These include Mumbai, Bangalore, Chennai, Pune, Raipur, Agra and Indore. The Phoenix Group relies on its

team's strengths, which include exceptional project management capabilities; project planning and aggressive

rollout plans.

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 – Bangalore

Phoenix Market City - Mumbai

Phoenix Market City - Pune

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 (STANDALONE) (A*- Actual, E* -Estimations & Rs. In Millions)

Balance Sheet as at March31, 2012 -2015E

THE PHOENIX MILLS LIMITED FY-12A FY-13A FY-14E FY-15E

I EQUITY AND LIABILITIES

A) Shareholder's Funds:

a) Share Capital 289.69 289.69 289.69 289.69

b) Reserves and Surplus 16431.18 17768.99 19334.52 21064.68

Sub-Total Net worth 16720.87 18058.68 19624.21 21354.37

B) Non Current Liabilities:

a) long term borrowing 2611.50 2067.00 1777.62 1688.74

b) Other Long term liabilities 663.70 770.85 832.52 882.47

c) Long term Provisions 3.88 3.64 3.79 3.97

Sub- Total Non Current liabilities 3279.08 2841.49 2613.92 2575.18

C) Current Liabilities:

a) Short term borrowings 6.57 120.64 199.06 230.90

b) Trade payables 410.39 440.61 462.64 476.52

c) Other Current liabilities 991.41 1124.75 1225.98 1299.54

d) Short term Provisions 360.07 92.73 64.45 70.25

Sub-Total Current Liabilities 1768.44 1778.73 1952.12 2077.21

TOTAL EQUITY AND LIABILITIES (A + B + C) 21768.39 22678.90 24190.25 26006.76

II ASSETS

D) Non-Current Assets:

Fixed Assets

i. Tangible assets 4394.58 4424.55 4513.04 4558.17

ii. Capital Work in Progress 913.17 1089.75 1231.42 1366.87

a) Sub-Total Fixed Assets 5307.75 5514.30 5744.46 5925.04

b) Non Current Investments 7997.64 9386.25 10334.26 11264.34

c) Long Term loans and advances 5478.15 3888.11 3304.89 2974.40

d) Deferred Tax Asset 28.32 30.21 32.02 33.62

e) Other non-current assets 83.94 5.08 5.89 6.60

Sub-Total Non-Current Assets 18895.80 18823.95 19421.53 20204.02

E) Current Assets:

a) Current Investment 100.00 0.00 0.00 0.00

b) Trade receivables 313.57 294.17 306.68 315.88

c) Cash and Bank Balances 137.71 223.23 292.43 350.92

d) Short-terms loans & advances 2176.34 3188.80 4017.89 4982.18

e) Other current assets 144.97 148.75 151.73 153.77

Sub- Total Current Assets 2872.59 3854.95 4768.72 5802.75

TOTAL ASSETS (D+E) 21768.39 22678.90 24190.25 26006.76

Annual Profit & Loss Statement for the period of 2012 to 2015E

Value(Rs.in.mn) FY12A FY13A FY14E FY15E

Description 12m 12m 12m 12m

Net Sales 1980.75 2706.01 2936.02 3170.90

Other Income 457.02 565.28 695.29 806.54

Total Income 2437.77 3271.29 3631.32 3977.44

Expenditure -580.14 -920.53 -921.91 -951.27

Operating Profit 1857.63 2350.76 2709.40 3026.17

Interest -165.45 -264.96 -357.70 -465.00

Gross profit 1692.18 2085.80 2351.71 2561.17

Depreciation -282.94 -275.40 -269.89 -272.59

Profit Before Tax 1409.24 1810.40 2081.82 2288.58

Tax -355.82 -471.61 -516.29 -558.41

Net Profit 1053.42 1338.79 1565.53 1730.16

Equity capital 289.69 289.69 289.69 289.69

Reserves 16431.20 17768.99 19334.52 21064.68

Face value 2.00 2.00 2.00 2.00

EPS 7.27 9.24 10.81 11.94

Quarterly Profit & Loss Statement for the period of 31 MARCH, 2013 to 31 DEC, 2013E

Value(Rs.in.mn) 31-Mar-13 30-June-13 30-Sep-13 31-Dec-13E

Description 3m 3m 3m 3m

Net sales 722.12 698.24 707.16 731.91

Other income 140.46 215.38 172.35 163.73

Total Income 862.58 913.62 879.51 895.64

Expenditure -243.16 -223.39 -228.64 -223.96

Operating profit 619.42 690.23 650.87 671.68

Interest -65.76 -71.70 -97.07 -95.13

Gross profit 553.66 618.53 553.80 576.55

Depreciation -70.68 -65.16 -65.32 -68.59

Profit Before Tax 482.98 553.37 488.48 507.96

Tax -121.83 -135.07 -123.20 -126.99

Net Profit 361.15 418.30 365.28 380.97

Equity capital 289.69 289.69 289.69 289.69

Face value 2.00 2.00 2.00 2.00

EPS 2.49 2.89 2.52 2.63

Ratio Analysis

Particulars FY12A FY13A FY14E FY15E

EPS (Rs.) 7.27 9.24 10.81 11.94

EBITDA Margin (%) 93.78 86.87 92.28 95.44

PBT Margin (%) 71.15 66.90 70.91 72.17

PAT Margin (%) 53.18 49.47 53.32 54.56

P/E Ratio (x) 28.96 22.79 19.49 17.63

ROE (%) 6.30 7.41 7.98 8.10

ROCE (%) 11.07 12.97 13.59 13.88

Debt Equity Ratio 0.16 0.12 0.12 0.11

EV/EBITDA (x) 17.76 13.81 12.00 10.76

Book Value (Rs.) 115.44 124.68 135.48 147.43

P/BV 1.82 1.69 1.55 1.43

Charts

OUTLOOK AND CONCLUSION

� At the current market price of Rs. 210.60, the stock P/E ratio is at 19.49 x FY14E and 17.63 x FY15E

respectively.

� Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs.10.81 and

Rs.11.94 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 17% and 18% over 2012 to 2015E

respectively.

� On the basis of EV/EBITDA, the stock trades at 12.00 x for FY14E and 10.76 x for FY15E.

� Price to Book Value of the stock is expected to be at 1.55 x and 1.43 x respectively for FY14E and FY15E.

� We recommend ‘BUY’ in this particular scrip with a target price of Rs.238.00 for Medium to Long term

investment.

INDUSTRY OVERVIEW

Real estate in India continues to be a favoured destination globally for investors, developers and non-resident

Indians (NRIs), driven largely by investor-friendly government policies and increasing globalisation. The second

largest employment generation sector after agriculture, real estate contributes about 6.3 per cent to India’s gross

domestic product (GDP). The foreign direct investment (FDI) in the sector is expected to touch US$ 25 billion in

the next 10 years from its current US$ 4 billion.

The sector’s progress is driven by factors such as rapid urbanisation, a growing trend towards nuclear families,

positive demographics, rural–urban migration, ever-developing infrastructure, higher income levels and housing

demand. The real estate sector, with its growing investment opportunities, is expected to post annual revenues of

US$ 180 billion by 2020.

Market Dynamics

The real estate sector in India is witnessing rapid growth in the residential, commercial and industrial segments.

Real estate development, once restricted to bigger cities, have shown marked progress in smaller cities and

towns owing to availability of banks loans, higher earnings and improved standard of living.

The real estate sector of India is projected to post annual revenues of US$ 180 billion by 2020 against US$ 66.8

billion in 2010–11, a compound annual growth rate (CAGR) of 11.6 per cent. The demand is expected to grow at a

CAGR of 19 per cent in the period 2010–2014, with Tier I metropolitan cities expected to account for about 40

per cent of this growth. As of now, Mumbai, Delhi-National Capital Region (NCR) and Bengaluru cater for 46 per

cent of total office space demand in India. This demand is expected to be rise sharply in Tier II cities such as

Kolkata and Chennai in the period 2010–14.

Today, Delhi-NCR accounts for about 30 per cent of the total mall supply in India. About 53 per cent of demand

for total mall space is projected to come from the country’s top seven cities, namely Delhi-NCR, Bengaluru,

Mumbai, Kolkata, Pune, Hyderabad, and Chennai, in the period 2010–2014.

Investment Opportunities

The Indian retail realty sector is projected to grow at around 15 per cent year-on-year over the next 3–5 years as

against a 12–13 per cent nominal growth of India’s GDP estimated by the International Monetary Fund (IMF). If

the sector does indeed manage the aforementioned growth, it will touch Rs 34 trillion (US$ 544.73 billion) by

2016.

India’s office space stock is estimated to rise by 40 per cent to 642.2 million sq ft by 2017, according to a report

by real estate consultancy Knight Frank India. The current Indian market offers some of the most competitive

rates in the Asia-Pacific region, according to a report by property services firm DTZ. The report also states that

Indian cities will have some of the fastest rental growths in the region over the period 2013–17, but will remain

among the most competitive.

The share of luxury retail space in India will be 1.4 per cent by 2015, according to a report by real estate services

firm Cushman & Wakefield. NCR and Mumbai, areas that have embraced the mall culture, are the two most

favoured destinations for luxury retailers.

The construction development sector, including townships, housing and built-up infrastructure garnered total

FDI worth US$ 22,671.95 million in the period April 2000–August 2013. Construction (infrastructure) activities

during the period received FDI worth US$ 2,280.95 million, according to the Department of Industrial Policy and

Promotion (DIPP).

The following are some of the major investments in the Indian real estate sector:

� Godrej Properties Ltd plans to invest Rs 90000.00 million (US$ 1.44 billion) in 15 new real estate projects in

India over the next 10 years.

� Unitech Ltd has signed a Rs 8000.00 million (US$ 128.17 million) deal to lease an 800,000 sq ft space at one

of its IT Special Economic Zones (SEZ) in Gurgaon, to multinational human resource firm, Aon Hewitt.

� NRI billionaire Mr Ravi Pillai plans to purchase stake worth about US$ 100 in a special purpose vehicle

floated by Pune-based realtor, Panchshil Realty. The investment will go into the construction of Trump

Towers and World Trade Centre in Pune, Maharashtra.

� Infrastructure Leasing & Financial Services (IL&FS) Ltd has claimed a project worth Rs 2444.60 million (US$

39.17 million) from realty firm Emaar MGF for construction work at the latter’s residential project at

Gurgaon, Haryana.

� French luxury hotel chain Sofitel, which is managed by Accor Group, is targeting 10 properties in India,

mainly in major luxury destinations, in the next few years.

� One of the world’s top manufacturers of elevators, US-based Otis, is setting its sights on the Indian real estate

market. The pace of construction in India makes the country an attractive proposition for such an investment.

The company will be working with the Delhi and Hyderabad Metro projects. The former has placed an order

for 222 escalators for its Phase III project, according to Otis.

Government Initiatives

According to the existing FDI policy, 100 per cent FDI in the construction development sector is permitted

through the automatic route. DIPP is looking at relaxing FDI norms further to encourage investment. It has also

proposed a reduction in the minimum capitalisation for wholly-owned subsidiaries from US$ 10 million to US$ 5

million, and from US$ 5 million to US$ 2.5 million for joint ventures with Indian partners.

One of the major initiatives of the Ministry of Housing and Urban Poverty Alleviation (MHUPA) is to provide

affordable housing for poor people living in urban areas. The Jawaharlal Nehru National Urban Renewal Mission

(JNNURM) is one its flagship schemes, a reform driven investment programme which started with the objective

of creating economically productive, efficient, responsive and inclusive cities.

The Real Estate (Regulation and Development) Bill, 2013, as approved by the Union Cabinet is a pioneering

initiative aimed at delivering a uniform regulatory environment to protect the consumer, help in quick verdicts of

disputes and ensure systematic growth of the sector.

Road Ahead

India needs to invest US$ 1.2 trillion over next 20 years to modernise urban infrastructure and keep pace with

the burgeoning urbanization.

Demand for space from sectors such as education and healthcare has opened up opportunities in the real estate

sector. Also, growth in the number of tourists has led to demand for service apartments. This demand in the

tourism sector is expected to generate 50,000 new hotel rooms over the next four to five years, across India’s

major cities.

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale

of any financial instrument or as an official confirmation of any transaction. The information contained herein is

from publicly available data or other sources believed to be reliable but do not represent that it is accurate or

complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall

not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the

information contained in this report. This document is provide for assistance only and is not intended to be and must

not alone be taken as the basis for an investment decision.

Firstcall India Equity Research: Email – info@firstcallindia.com

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