Sector Thematic

Real Estate
Ripe for consumption
COVID-19 has been a black swan event, which has hit the retail malls sector hard,
both globally and locally. But consumption in the system remains subdued due to
regulatory restrictions and personal safety preferences. We believe we are a
vaccine away from normalcy, and it will be a hard road over the next 12-15
months. For well-capitalized organized players, it is a blessing in disguise to be
able to (1) build inorganic assets at high cap rates (2) optimize/relook capital
allocation, and (3) further gain market share through consolidation.

Foot ‘falls’ – provides attractive entry

In the past three months, Phoenix Mills Ltd (PML) has corrected 30% on the back
of (1) COVID-led mall closures, (2) concerns over work from home, (3) likely
correction in retail rents, and (4) concerns over the long road ahead to normalcy.
However, we believe that consumption will mean revert once the vaccine is in
place. Strong market positioning, marquee assets, and robust financial track
record place PML in a position to tide over the current headwinds. We believe the
company is 'ripe for consumption' and initiate coverage with a SOTP of Rs 828/sh.

Parikshit Kandpal Chintan Parikh Rohan Rustagi

Real Estate, Construction & Infra Real Estate, Construction & Infra Real Estate, Construction & Infra
parikshitd.kandpal@hdfcsec.com chintan.parikh@hdfcsec.com rohan.rustagi@hdfcsec.com
+91-22-6171-7317 +91-22-6171-7330 +91-22-6171-7355
 21 August 2020 Sector Thematic

Real Estate - Retail

Ripe for consumption Company
MCap
(Rs
CMP
Reco.
TP
(Rs
(Rs)
COVID-19 has been a black swan event, which has hit the retail malls sector bn) /sh)

hard, both globally and locally. In the near term, this has led to asset values Phoenix Mills 100 649 BUY 828

correcting 35-40% with concerns on survival of the modern-day consumption DLF 398 161 BUY 219
format. But consumption in the system remains subdued due to regulatory Oberoi 137 377 BUY 500
restrictions and personal safety preferences. We believe we are a vaccine away Prestige Est 102 256 BUY 280
from normalcy, and it will be a hard road over the next 12-15 months. For well- Brigade Ent 34 162 BUY 213
capitalized organized players, it is a blessing in disguise to be able to (1) build Sobha Ltd 25 265 BUY 348
inorganic assets at high cap rates (2) optimize/relook capital allocation, and (3) Kolte Patil 13 177 BUY 240
further gain market share through consolidation.
COVID-19–a great leveler–hits global REITs hard: The pandemic has cratered
the global retail REITs as lockdown has hit consumption and rentals for malls
resulting in 20-60% corrections in REITs values, making NDCF yield more
attractive than reference bonds. For Indian real estate stocks, either pure-plays
(like Phoenix) or proxies (other players with mall exposures) stories are not too
different, with stock prices correcting 35-40%. This provides attractive entry for
investors on sidelines. We believe consumption will pick up over the next 12-15
months with normalized monthly run-rate by next Diwali 2021 or Nov 2021. The
recovery is just a vaccine away.
India malls story mirrors global picture, reinvents, and builds on: We have
done detailed 10-yr study of growth matrices of over 50+ large mall
brands/stores listed in various Indian malls. India has seen sharp changes in
consumption patterns with aspirational class moving towards luxury goods and
newer experiential services like multiplexes, F&B, luxury watches, departmental
stores, beauty & salon, etc. We have bucketed these in categories and arrive at
26% FY16-19 revenue CAGR and robust profitable growth on the back of urban
consumption. Rent as cost is sizeable but most of the categories have seen
profitable growth and rent is not the only determining factor for mall presence.
Global capital chasing scarce high quality mall assets: In the near term, the
pandemic shock is a passing phase and consumption will revert to mean once
the pandemic wanes. Global brands continue to expand in malls, and global
funds are investing capital for this consumption play, viz., Blackstone, Xander,
GIC, and CPPIB. We see more partnering/strategic opportunities emerging for
organized mall developers like Phoenix Mills Ltd (PML).
Large organized mall portfolio rated-A, Capex could be deferred to tackle
balance sheet woes: We have carried out a detailed financial assessment of large
unlisted and listed malls. Studying their credit rating reports, we find that,
Parikshit D Kandpal, CFA
overall, 36% of the organized malls have A-rating. Credit rating agencies have
parikshitd.kandpal@hdfcsec.com
put the A-rated malls on negative watch due to the pandemic, despite which, the
+91-22-6171-7317
rating width is positive. We believe new supply would be curtailed and
completion timelines of under-construction malls could be pushed by 1-2 years.
Chintan Parikh
Initiate coverage on Phoenix Mills (PML) with SOTP of Rs 828/sh: We believe, chintan.parikh@hdfcsec.com
with strong balance sheet and marquee assets position, PML is well-poised to +91-22-3021-7330
ride the cyclical recovery (at present, restrictions on mall’s operations and
COVID-led fears have curtailed the underlying demand). PML is a derivate on Rohan Rustagi
richly valued underlying consumption real estate play with a vast scope for rohan.rustagi@hdfcsec.com
expansion. In the long run, it holds the potential for significant cash flow +91-22-3021-7355
distribution and growth. Near-term headwinds remain, but current prices
provide ‘quality at reasonable price.

HSIE Research is also available on Bloomberg ERH HDF <GO> & Thomson Reuters
Sector Thematic: Real Estate - Retail

Contents
Globally REITs have been cratered .................................................................................... 3
Re-rating just a vaccine away .............................................................................................. 5
Large REIT players' price underperformance ................................................................... 6
Indian malls replicate the global story ............................................................................. 7
High rentals as percentage of sales; few categories report losses ................................. 8
Mall rental growth highly linear to consumption growth ............................................. 9
Regression analysis categories wise ................................................................................ 10
Global capital wants to have pie of Indian consumption ............................................ 11
Indian players not behind, chase mall build out ........................................................... 12
India still underpenetrated, malls remain mostly urban play .................................... 13
Significant Capex plans for Tier 1 may slow down, face delays................................. 14
FY21/22E to be a tough year for the retail mall sector ................................................... 15
Credit agencies remain investment grade on malls ...................................................... 16
Key risks ............................................................................................................................... 20
Phoenix Mills Initiation Note............................................................................................ 21

Page | 2
Sector Thematic: Real Estate - Retail

Globally REITs have been cratered

REITs have corrected Hit by pandemic-led lockdown and concerns of bankruptcies
sharply, particularly retail
COVID-led disruptions and lockdown have severely impacted the retail malls
REITs, due to COVID led
segment globally. In the exhibit below, we highlight price performance of global
uncertainties
listed REITs in the US, Japan, Singapore, Australia, and Hong Kong. In India, we do
not have a listed pure-play REIT and, hence, we have taken Phoenix Mills as a proxy.
The extent of price damage is more vigorous for REITs with high leverage as
bankruptcies loom, and reversals of consumption to pre-COVID levels are at least a
year away. Most of the listed REITs have corrected 20-50%.
Across US & APAC, REITs Retail REITs performance
have fallen by 20-50% Absolute performance (%) Relative performance (%)#
REIT name CMP
1m 3m 6m 12m YTD 1m 3m 6m 12m YTD
US (USD)
Simon Property 64.0 2.3 18.9 (53.9) (57.7) (54.9) (2.2) 3.5 (14.5) (17.7) (16.9)
Spirit Realty Corp 35.1 11.0 23.1 (32.9) (22.1) (24.7) 6.5 7.7 6.6 17.9 13.3
The Macerich Co. 7.4 (2.7) 25.8 (66.0) (73.0) (68.3) (7.3) 10.5 (26.6) (33.0) (30.3)

With consumption Taubman Centre 37.6 2.1 (10.9) (28.1) (8.4) 28.0 (2.5) (26.3) 11.3 31.7 65.9

recovery still a far-cry, the Realty Income Corp 61.0 9.6 15.6 (20.6) (14.1) (13.8) 5.0 0.3 18.8 26.0 24.1
National Retail 35.1 9.8 17.8 (34.9) (33.2) (29.9) 5.3 2.5 4.5 6.8 8.1
extent of correction is more
Agree Realty Corp 66.6 6.0 5.8 (11.4) (4.2) 0.0 1.4 (9.6) 28.0 35.9 38.0
substantial for highly
Saul Centres 27.8 5.2 10.3 (31.9) (40.4) (37.2) 0.6 (5.0) 7.5 (0.4) 0.7
levered retail developers
Tanger Factory Outlet 5.9 (2.9) 5.2 (52.0) (59.1) (54.7) (7.4) (10.1) (12.6) (19.0) (16.7)
Pennsylvania REIT 1.1 (1.6) 17.8 (66.9) (76.8) (75.4) (6.1) 2.4 (27.5) (36.7) (37.5)
Japan (JPY)
Japan Retail 1,47,100 10.2 (5.6) (40.8) (36.1) (40.4) 9.1 (7.2) (16.9) (19.1) (18.6)
Frontier REIT 3,37,000 (3.4) (10.1) (30.8) (30.8) (32.3) (4.5) (11.7) (7.0) (13.7) (10.5)
AEON 1,12,000 (0.7) (7.2) (23.4) (20.0) (25.7) (1.8) (8.8) 0.5 (2.9) (3.9)
Phoenix Mills (PML), only
Singapore (SGD)
listed pure-play retail Capitaland Mall 1.86 (7.4) 1.1 (24.3) (28.4) (24.0) (5.9) (7.0) (12.3) (21.6) (13.6)
developers, is down 30% Fraser Centre Point 2.37 (3.8) 10.7 (21.4) (12.0) (18.3) (2.3) 2.6 (9.4) (5.2) (7.9)
from the high Feb’20 SPH REIT 0.85 (3.4) 6.9 (20.6) (20.6) (21.3) (1.9) (1.2) (8.6) (13.8) (11.0)
Starhill Global 0.45 (16.0) (8.2) (36.4) (40.7) (38.6) (14.5) (16.4) (24.4) (33.9) (28.3)
Australia (AUD)
Scentre Group 1.99 (2.4) (9.2) (46.6) (48.3) (46.2) (7.8) (16.6) (21.6) (24.6) (26.6)
Vicinity Centres 1.26 3.6 (8.5) (46.4) (45.7) (45.1) (1.8) (15.9) (21.3) (22.1) (25.4)
Shopping Centres 2.13 4.6 4.6 (25.6) (10.2) (14.9) (0.9) (2.8) (0.6) 13.5 4.8
Charter Hall 3.24 0.8 2.4 (33.1) (30.8) (24.4) (4.6) (5.0) (8.0) (7.1) (4.7)
Waypoint 2.67 (2.5) 4.0 (10.6) (5.5) (7.3) (8.0) (3.4) 14.4 18.2 12.4
Hong Kong (HKD)
Link 60.3 (2.7) (10.7) (21.9) (32.4) (25.2) 0.7 (1.7) 0.9 (2.4) 0.8
Fortune 6.59 (3.9) (9.5) (25.6) (33.3) (27.0) (0.5) (0.6) (2.8) (3.3) (1.0)
India (INR)
Phoenix Mills* 649 1.2 16.1 (31.3) (5.3) (27.6) (3.8) (6.4) (24.8) (7.2) (19.7)
Source: Bloomberg, HSIE Research *In the absence of a Retail REIT in India, we have considered Phoenix
Mills, pure-play mall operators for comparison # Relevant benchmark indices

Page | 3
Sector Thematic: Real Estate - Retail

REITs are yet to recover

Optimism around V- Most of the global equity indices are nearing their 52-week high levels as gradually
shaped economic recovery phased unlocking has resulted in demand recovery (pent up or normal) and is
has induced a sharp rally catching up to pre-COVID levels. REIT indices have not been able to give this
and now most of the global confidence to the markets as (1) many of the malls remain locked, viz., multiplexes
indices are close to their and general entertainment with tepid demand in the F&B segment, (2) occupiers have
52-week high asked for 50-70% discount vs Minimum Guarantee and (3) consumers have been
staying away from malls due to safety concerns. This entire development has led to
consumption falling to 20-25% of the pre-COVID level. Some of the malls may even
need to shut down as revenue shortfall will not be sufficient to cover operating costs,
putting pressure on debt servicing. In the Indian context, PML remains resilient with
However, REIT indices a robust balance sheet and potential fund raise.
have been exceptions
Index Market CMP 52W high vs High 52W low vs Low
Dow Jones US 27,693 29,569 -6% 18,214 53%
S&P 500 US 3,375 3,394 -1% 2,192 53%
Nifty Index India 11,312 12,431 -9% 7,511 51%
While Dow Jones Sensex index India 38,220 42,274 -9% 25,639 50%
Composite All REIT (All Hang Seng Index Hong Kong 24,791 29,175 -14% 21,139 18%
US REITs) has recovered
Nikkei Japan 22,881 24,116 -6% 16,358 39%
and is down 18%, Dow
Strait Times Index Singapore 2,528 3,286 -23% 2,208 15%
Jones Retail REIT is still
S&P/ASX 200 Australia 6,120 7,197 -15% 4,403 39%
43% below its 52-week
high DJ Global Select REIT Index Global 1,068 1,401 -21% 1,401 -21%
DJ US Select REIT US 232 314 -24% 169 42%
DJ Composite All REIT US 260 318 -18% 176 48%
DJ US Retail REIT US 61 111 -43% 44 43%
FTSE Nareit Equity US 198 377 -45% 157 33%
S&P Asia Pacific REIT Asia 205 257 -21% 139 46%
Hang Seng REIT Index Hong Kong 5,496 7,914 -31% 5,072 8%
TSE REIT Japan 1,696 2,262 -26% 1,138 48%
iEdge S-REIT index Singapore 1,297 1,526 -15% 918 41%
S&P/ASX 200 A-REIT EW Australia 1,257 1,736 -27% 877 44%
Source: Bloomberg, HSIE Research

Page | 4
Sector Thematic: Real Estate - Retail

Re-rating just a vaccine away

The correction presents an opportunity to own REITs at
attractive valuations
In our view, correction
presents an opportunity to Long-term growth has been much ahead for REIT index vs other developed global
enter this asset class as indices. REITs are an extended play on consumption and, hence, with consumption
long term growth of REITs reversals, these would stand to benefit. In the exhibit below, we highlight REITs
have been much ahead performance vs other asset classes on a 20-year CAGR basis. REITs are placed after
compared to other global Gold globally and behind emerging markets indices. The recent correction presents
indices an excellent opportunity to look at this alternate relatively lower risk asset class vs
equities.
REITs have given consistent return over multiple horizons (%)
5yr 10yr 15 yr 20yr
Strait Times Index (3.7) (1.4) 0.8 1.0
Retail REITs are
Nikkei 2.3 9.5 4.2 1.8
reasonable proxy for
consumption play Hang Seng 0.8 1.6 3.2 1.9
ASX 2.6 3.3 2.1 3.1
Nasdaq 100 18.2 19.3 13.6 5.1
ICE BofAML Corp/Govt. Bond 4.8 4.2 4.5 5.3
S&P 500 10.7 14.0 8.8 5.9
Hence, we believe, REITs Russel 2000 4.3 10.5 7.0 6.7
would benefit once
Dow Jones Industrial 7.9 10.2 6.3 4.6
consumption recovery
FTSE Nareit 6.6 10.4 6.9 10.1
takes place
Gold 10.8 4.4 10.1 10.2
Nifty 6.2 7.6 11.0 11.4
Sensex 6.8 7.8 11.2 11.7
Source: Bloomberg, NAREIT, HSIE Research

20-year annualised return across asset categories (%)

Sensex

Nifty

Gold

FTSE Nareit

Russel 2000

S&P 500

ICE BofAML Corp/Govt. Bond

Nasdaq 100

Dow Jones Industrial

ASX

Hang Seng

Nikkie

Strait Times Index

- 2.0 4.0 6.0 8.0 10.0 12.0 14.0

Source: Bloomberg, NAREIT, HSIE Research

Page | 5
Sector Thematic: Real Estate - Retail

Large REIT players' price underperformance

Globally, G-sec yields Makes NOI, NDCF yields attractive vs long-term bond yields
have fallen below 1% as
The price correction has made the Net Distributable Cash Flow (NDCF) Yield
central banks injected
attractive vs long-term sovereign bonds or other corporate bonds. Whilst globally the
liquidity to revive
interest rates have seen a correction, counter-intuitively, NDCF yields have seen
economies
expansion due to risk perception on REITs defaulting and leading to bankruptcies. In
the Indian context, we see limited risks for PML as it has low leverage and fund-raise
may lead to risk-off and price re-rating. Consumption recovery may take time to pan
out, but aggressive expansion in new cities bodes well for growth whilst operational
malls may also see post-COVID recovery over the next one year, lending visibility to
a stable balance sheet.
On the other hand, sharp
correction in Retail REITs Snapshot of retail REITs
has resulted in NDCF yield NOI
MCap EV EV/EBITDA NOI
REIT Name Occupancy 5yr NDCF yield
expansion as concern over (USD bn) (USD bn) (x)
CAGR
10yr CAGR
their bankruptcies linger US
Simon Property 95% 20.5 45.6 11.7 3% 5% 19%
Realty Income Corp. 99% 21.6 29.7 20.3 10% 16% 5%
National Retail 99% 6.4 9.7 16.7 9% 12% 7%
Spirit Realty Corp 100% 3.7 6.2 13.6 -6% 5% 9%
Agree Realty Corp 100% 3.6 4.4 23.8 27% 18% 4%
Compared to its global Taubman Centre 94% 2.4 6.1 17.9 0% 0% 14%
peers, PML is on a strong Saul Centers 95% 0.8 2.1 15.0 2% 3% 13%
footing, given its relatively Japan
low leverage and room for Japan Retail 100% 3.5 6.5 17.0 0% 3% 8%
growth in India AEON 99% 1.9 8.9 9.1 23% NA 10%
Frontier REIT 100% 1.5 2.4 16.9 2% 5% 9%
Singapore
Capitaland Mall 99% 5.0 7.6 23.3 4% 4% 6%
Fraser Centre Point 96% 1.9 2.6 23.6 3% 9% 5%
SPH REIT 99% 1.7 2.6 20.6 7% NA 6%
Starhill Global 97% 0.7 1.5 18.8 0% 4% 8%
Australia
Scentre Group 99% 7.8 17.8 14.1 7% NA 12%
Vicinity Centres 100% 4.4 7.1 12.7 13% 42% 11%
Charter Hall 1.4 1.8 13.7 2% -1% 7%
Hong Kong
Link 97% 16.5 20.4 20.1 9% 11% 5%
Fortune 97% 1.7 2.8 11.0 5% 11% 8%
Source: Bloomberg, Company, HSIE Research

Average 10 year G-sec yield over past decade

4.5% 3.9%
4.0%
3.5% 3.0%
3.0%
2.5% 2.2% 2.0%
2.0% 1.7%
1.5%
1.0% 0.4%
0.5%
0.0%
Australia USA Singapore Hong Kong Japan FTSE
EPRA/Nareit
Global

Source: Bloomberg, HSIE Research; FTSE EPRA/Nareit Global dividend yield

Page | 6
Sector Thematic: Real Estate - Retail

Across categories, we have Indian malls replicate the global story

looked at some of the
retailers, which occupy a Global brands see malls’ presence for premium positioning
substantial part of the
We have done a detailed 10-yr mapping of the Indian malls and have bucketed some
mall space
of the key occupiers into different segments. We have seen a ramp-up of significant
multinational presence in malls over the past 8-10 years, replicating the global malls'
story. The long-term growth of these categories is highlighted in the exhibit below.
We have seen malls re-inventing themselves during this period and using multiple
levels to optimize rental CAGR by (1) attracting the luxury brands with high revenue
share paying capacity, (2) optimizing shift towards performing brand and cutting
Relaxation of FDI limit in
down on non-performing ones and (3) expanding or making more space available for
retail has led to many
a new format like automobiles, experiential F&B, etc.
global brands
establishing/expanding Categorywise revenue growth
their presence FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
FY16-
19 CAGR*
Apparel 64% 74% 30% 29% 59% 13% 11% 0% 20%

Beauty & spa 10% 2% 4% 14% 58% 5% 0% -7% -1%

Department store 21% 19% 73% 17% 12% 17% 10% 14% 21%

Entertainment 30% 60% 49% 9% 23% 12% 12% 23% 24%

Like their global peers, Food & beverages 43% 32% 23% 16% 14% 9% 18% -10% 22%
Indian mall developers too Footwear 19% -7% 27% 23% -4% 8% 4% 8% 10%
have curated their malls as Grocery 58% 58% 19% 4% 82% 72% 7% 14% 50%
an experience-led shopping Jewellery & accessories 33% 16% 36% 14% 1% 8% 22% 16% 23%
center and proactively
Total 34% 26% 37% 16% 22% 22% 13% 11% 26%
changed mix of retailers in
Source: Ace Equity, HSIE Research *Same-store CAGR
line with change in
consumption shift
Some of the retailers we have considered
Departmental Entertainme
Apparel Others* F&B Footwear Beauty & spa Grocery
stores nt
Barbeque- Big
ABFRL Titan Central Bata Enrich Inox
Nation Bazaar
Health &
We believe mall operators Arvind TBZ Brand Factory CCD Clarks
Glow
Metro PVR

would reinvent themselves Malabar

Bestseller Lifestyle Pizza Hut Adidas Kaya Spencer's
to accommodate changes Gold
MAS Senco Gold EasyDay KFC Nike
in consumption habits,
brought about by the TCNS DA Milano Max McDonald's Reebok

pandemic Biba Baggit Shoppers Stop Dominos

Dunkin
Gini & Jony Hidesign Trent
Donuts
H&M Samsonite Marks & Spencer Starbucks

Zara VIP

Levi’s Wildcraft
Tommy Home
Hilfiger Town
Ethos

Fossil

Bose

Archies
Source: Ace Equity, HSIE Research *Includes Jewellery, Watches, Electronics & accessories etc.

Page | 7
Sector Thematic: Real Estate - Retail

High rentals as percentage of sales; few categories report losses

Our analysis of rental Rentals are not the only determining factor for the brands' malls presence. In the
expense of retailers over exhibit, we have highlighted the rental costs as a percentage of sales. As long as
the past 10 years suggests consumption is growing, the EBITDA margins are resilient for most categories, as per
rental is not the only the historical financials. Many of the categories have healthy EBITDA margins,
determining factor for their although, in the near term, the impact of COVID-19 may result in lower profits or
mall presence losses for a few brands. Looking at the sustainability of the malls over mid to long
term, landlords have amicably given rentals discounts with most of the tenants
shifting to revenue share model until consumption reverts to normal pre-COVID
levels. We believe the brands have a long-term strategy for India, and many of the
categories may continue to do business from malls. Some of the vulnerable ones may
Almost all categories had see a reduced footprint, viz., departmental stores and grocery.
seen healthy EBITDA Rent as % of sales
margins despite sizeable FY13 FY14 FY15 FY16 FY17 FY18 FY19
rentals Apparel 6 9 9 11 11 10 11
Beauty & spa 8 7 12 11 11 11 10
Department store 5 7 7 7 7 7 7
Entertainment 14 16 17 19 19 19 18
Curtailed mall operation Food & beverages 8 11 10 10 11 10 11
would erode the topline of Footwear 8 8 9 9 8 8 8
malls and, consequently, Grocery 3 4 3 6 6 6 6

impact their margins Jewellery & accessories 2 2 2 2 2 2 2

Total 4 5 6 7 7 6 6

EBITDA margin (%)

FY13 FY14 FY15 FY16 FY17 FY18 FY19
Apparel 11 8 9 8 8 9 9
Typically, mall operators Beauty & spa (12) (6) 2 2 (0) 2 0
charge minimum guarantee Department store 6 7 8 8 8 9 9
(MG) rent to retailers and Entertainment 14 15 13 16 13 16 19
once consumption rises Food & beverages 11 10 7 7 7 13 14
above pre-defined Footwear (8) 7 7 5 9 13 16
threshold level, they Grocery (14) (10) (6) 0 3 4 4
receive part of the revenue Jewellery & accessories 8 7 7 6 7 8 8
(revenue-share) Total 4 5 6 6 6 8 8

PAT margin (%)

FY13 FY14 FY15 FY16 FY17 FY18 FY19
Apparel 2 (1) 0 2 3 3 4
Beauty & spa (18) (1) 0 (1) (3) (2) 3
Department store 2 2 3 2 3 4 4
To provide relief to the Entertainment 5 4 2 6 4 7 7
retailers, mall operators Food & beverages 1 (1) (4) (3) (3) 2 3
have given waivers on the Footwear (24) 7 2 1 3 6 10
fixed rental portion and Grocery (18) (9) (9) (2) 1 (0) 3
have switched to revenue Jewellery & accessories 5 4 4 3 4 5 5
share until consumption Total (1) 1 1 2 2 3 4
recovers to the pre-COVID Source: Ace Equity, HSIE Research
level Categorywise vulnerability
Category Vulnerability Category Vulnerability
Apparel High Food & beverages Low
Beauty & spa Low Footwear Medium
Department store High Grocery High
Entertainment High Jewellery & accessories Medium
Source: HSIE Research

Page | 8
Sector Thematic: Real Estate - Retail

We have looked at the Mall rental growth highly linear to consumption growth
revenue growth of some of We have tried to map the segment wise consumption growth (for larger mall
the brands/categories that categories) with PML consumption growth and find high/significant linear
are mall occupiers or have relationship for a few categories, viz., apparel, grocery, entertainment, etc. The rising
large mall presence consumption share, along with rising income levels, may lead to a higher revenue
share than MG for the categories. PML may witness a higher overall rental CAGR. In
terms of rising aspirations, a post-COVID trend seems to be emerging of consumers
looking to ramp up spends on personal wellbeing and consumption. This trend
bodes well for PML.
Revenue growth of these
retailers and consumption Retailers growth and PML growth (%)
growth at PML malls have FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19

high correlation across Apparel 86 64 74 30 29 59 13 11 0

categories Beauty & spa 7 10 2 4 14 58 5 0 (7)
Department store 110 21 19 73 17 12 17 10 14
Entertainment 30 30 60 49 9 23 12 12 23
Food & beverages 26 43 32 23 16 14 9 18 (10)
Footwear 15 19 (7) 27 23 (4) 8 4 8
Grocery 167 58 58 19 4 82 72 7 14
We expect PML to benefit
from rise in consumer Jewellery & accessories 47 33 16 36 14 1 8 22 16

spend after consumption Total 57 34 26 37 16 22 22 13 11

normalizes PML consumption growth YoY 80 66 97 57 22 10 7 9 9
Source: Ace Equity, HSIE Research

Correlation coefficients
1.00
0.80
0.60
0.40
0.20
-
(0.20)
(0.40)
Department store
Apparel
Retailers total growth

Footwear
Beauty & spa

Entertainment

Jewellery & accessories

Grocery
Food & beverages

Source: Ace Equity, HSIE Research

Page | 9
Sector Thematic: Real Estate - Retail

Apparel Beauty & spa Entertainment

100% 70% 70%
y = 0.9856x + 0.1327
90% 60%
60%
80% 50% y = 0.528x + 0.1301
70% 50%
40%
60%
30% 40%
50%
20% 30%
40%
10%
30% 20%
20% 0%
y = -0.2046x + 0.1612 10%
10% -10%
0% -20% 0%
0% 20% 40% 60% 80% 0% 20% 40% 60% 80% 0% 20% 40% 60% 80%

Source: Ace Equity, HSIE Research Source: Ace Equity, HSIE Research Source: Ace Equity, HSIE Research

Departmental stores Food & beverages Footwear

120% 50% 30%

40% 25%
100%
y = 0.3328x + 0.097
20%
y = 1.101x + 0.0188 30%
80%
15%
20%
60% 10%
10% y = -0.0028x + 0.1039
5%
40%
0%
0%
20% -10% -5%

0% -20% -10%
0% 20% 40% 60% 80% 0% 20% 40% 60% 80% 0% 20% 40% 60% 80%

Source: Ace Equity HSIE Research Source: Ace Equity

Grocery Jewellery & accessories Overall

180% 50% 60%
160% 45%
y = 0.4167x + 0.0991 50%
140% 40% y = 0.4892x + 0.1279
y = 1.3375x + 0.1636 35%
120% 40%
30%
100%
25% 30%
80%
20%
60% 20%
15%
40% 10%
10%
20% 5%
0% 0% 0%
0% 20% 40% 60% 80% 0% 20% 40% 60% 80% 0% 20% 40% 60% 80%

Source: Ace Equity HSIE Research Source: Ace Equity

Page | 10
Sector Thematic: Real Estate - Retail

Global capital also wants to have a pie in this consumption

growth story–either directly or through partners
The Indian consumption
Blackstone–Nexus malls and Xander–Virtuous Retail Malls are early
story has attracted a
believers/investors in the Indian consumption story and have been ramping up
sizable capital from global
presence in Indian malls, both organic and green field. The strategy is to (1) invest in
funds
the consumption play, (2) shift unorganized demand to organized, and (3) bring
better experiential flavor to consumer demand. These players are looking at
distressed opportunities in the market brought about by the pandemic. We have seen
Blackstone monetizing stakes in the listed Office REITs whilst PML is looking at
raising funds for any future inorganic acquisition opportunities. Consolidation may
Nexus Malls, backed by
bode well for the sector as large players stand to benefit at the current cap rate of 9.5-
Blackstone, has nine retail
10%. The future compression in cap rate once consumption recovery pans out shall be
assets, spanning 5.3 msf
positive for the sector.
Latest Revenue CAGR
Name Location Size (mn sqft)
occupancy FY17-19
Nexus (Blackstone)
Virtuous Retail, backed by
APG and Xander group, Ahmedabad One Ahmedabad 0.7 92% 42%

has six assets with gross Mall of Amritsar Amritsar 0.5

leasable area of 5.2 msf Westend Pune 0.4 93%
Seawoods MMR 1.0 93%
Elante Chandigarh 1.2 99% 10%
Treasure Island Indore 0.4 93% 9%
CPPIB has entered into
Next Treasure Indore 0.2 82% 136%
partnership with Phoenix
Esplanade Bhubaneswar 0.5 99%
Mills to develop three
malls across India Pavillion Pune 0.4 98% 20%
Nexus total 5.3
Virtuous Retail (Xander, APG)
VR Punjab Chandigarh 1.0 94% 21%
GIC has also invested in VR Bengaluru Bengaluru 0.9 90% 73%
operational assets VR Surat Surat 0.6 97%
VR Chennai Chennai 1.0 90% 73%
VR Ambarsar Amritsar 1.0 60%
VR Nagpur Nagpur 0.7
Virtuous Retail total 5.2
Source: CRISIL, ICRA, India Ratings, HSIE Research

Page | 11
Sector Thematic: Real Estate - Retail

Indian large realty players not behind – with marquee investors

in tow
Indian developers have
PML, DLF, Prestige Estate, Oberoi Mall and Brigade Enterprises are mall asset plays
also capitalized on India’s
in the Indian context. In terms of REIT play, only PML seems to be pure retail mall
consumer story
play with likely REIT opportunity potential once new under-construction malls
become operational. DLF, PEPL, Oberoi and Brigade have small rental income from
the malls. Oberoi and PEPL have plans to expand the current mall portfolio.
Phoenix Mills, the largest Name Location Size (mn sqft) Latest occupancy Revenue FY17-19 CAGR
mall operator in the Phoenix Mills
country, has nine HSP & Palladium MMR 0.77 95% 8%
operational malls in six PMC Bengaluru 1.00 97% 10%
cities PMC Pune 1.19 96% 10%
PMC Mumbai 1.14 92% 1%
PMC & Palladium Chennai 1.22 96% 9%
Phoenix United Lucknow 0.33 86% 13%
Phoenix United Bareilly 0.31 91% 9%
DLF has nine retail assets Palassio Lucknow 0.90
in the National Capital Phoenix Mills total 6.86
Region (NCR) DLF
Mall of India Noida NCR 1.97 100%
DLF Avenue (Formerly Saket) NCR 0.52 99% -3%
Promenade NCR 0.46 100% 5%
Other large players are
Cyber Hub NCR 0.46 99%
Prestige Estate, K Raheja-
Emporio NCR 0.31 97% 3%
backed Inorbit, Brigade
City Centre NCR 0.19 74%
Enterprise and Oberoi
Chanakya NCR 0.19 93%
Realty
South Square NCR 0.06 99%
Capital Point NCR 0.09 99%
DLF total 4.25
Prestige Estate
Forum Sujana Hyderabad 0.82 100%
Forum Fiza Mangalore 0.67 4%
Forum Vijaya Chennai 0.64
Forum Shantiniketan Bengaluru 0.62 94%
Forum Celebration Udaipur 0.39
Forum Mall Bengaluru Bengaluru 0.35
Forum City Centre Mysore 0.31 100%
The Forum Neighbourhood Bengaluru 0.29 17%
UB City Retail Bengaluru 0.10
Prestige Mysore Central Bengaluru 0.06
Prestige Mysore Central Bengaluru 0.02
Prestige Estate total 4.27
Brigade Enterprise
Orion Mall @ Brigade Gateway Bengaluru 0.83 9%
Orion Avenue Mall Bengaluru 0.15
Brigade Vantage Chennai 0.06
Brigade Total 1.04
Oberoi Realty
Oberoi Mall MMR 0.55 97%
Oberoi Realty total 0.55
Source: Company, CRISIL, ICRA, India Ratings, HSIE Research

Page | 12
Sector Thematic: Real Estate - Retail

India still underpenetrated–malls remain mostly urban play

Malls in India are positioned as urban-centric consumption plays. High per capita
Despite the substantial urban income and propensity to consume makes it an attractive marketplace. The
increase in the number of upcoming supply and mall stock are highlighted in the exhibit below. As per
malls in the past decade, Anarock, new mall supply of 69/31malls is expected in Tier1/Tier 2 cities over CY20-
India remains an under- 22E although COVID-led disruptions may put a spanner in the construction works,
penetrated market with timelines extending by 1-2 years.
City-wise upcoming mall supply (CY20-22E)
City Supply (msf) No of Malls Average Mall Size (msf)
MMR 7.8 18 0.43
Per capita availability of NCR 7.5 13 0.58
mall space is significantly Hyderabad 5.5 12 0.46
lower than the global Bengaluru 5.9 10 0.59
average; hence, there is Chennai 4.3 9 0.48
ample opportunity to grow Pune 2.6 4 0.65
Kolkata 1.9 3 0.63
Total Tier 1 35.5 69 0.51
Ahmedabad 3.2 6 0.53
Lucknow 2.5 4 0.63
As per earlier reports by
Nagpur 0.9 2 0.45
Anarock, 100 new malls,
Surat 0.7 2 0.35
spanning 49 msf were to
open during CY20-22, Others 6.2 17 0.36

doubling the existing mall Total Tier 2 & 3 13.5 31 0.44

stock Total 49.0 100 0.49
Source: Anarock, HSIE Research

Current mall stock–49.6mn sqft

The mall stock is expected to double from 49.6mn sqft to almost 100mn sqft over the
However, considering the next 3-4 years.
disruption, new supply Mall Stock Mall space per Avg. Rental
City Vacancy
might get delayed as (msf) person (sf) (Rs/sf/month)
developers await NCR 14.8 3.2 14% 250-340
consumption recovery MMR 11.8 1.0 7% 200-250
Bengaluru 7.6 0.9 15% 120-225
Chennai 6.0 1.3 15% 70-150
Pune 4.0 1.3 10% 120-170
Hyderabad 2.8 0.4 15% 100-160
Kolkata 2.6 0.6 8% 130-200
Total 49.7
Source: Anarock, HSIE Research

Page | 13
Sector Thematic: Real Estate - Retail

Significant Capex plans for Tier 1 may slow down, face delays
Prominent players have Despite COVID-19 pandemic, the Capex programs of large real estate developers
planned considerable capex remain as per plan. Whilst most of the upcoming supply has financial closure in
for new malls place, banks are reassessing/considering (1) risks attached with lower rentals post-
pandemic and (2) longer timelines to recovery. Some of the developers are seeing
reduced LTVs by banks, and hence developers may need to bring in a higher share of
equity into the projects. LRD market is also not conducive as financial institutions
find it challenging to value malls at the current rental run rate (20-25% of the pre-
Despite the pandemic, they COVID level). Hence, determining LTV and resultant debt limits will be an uphill
are confident of Indian task, based on the new LTVs. Developers may retain their mall Capex plans, but
consumption story and timelines could get pushed by another 1-2 years.
continuing with their
capex plan Upcoming large malls
Project Name City Leasable Area (msf) Capex (Rs mn)
Phoenix Mills
PMC Wakad Pune 1.1 8,500
PMC Hebbel Bengaluru 1.2 18,000
Majority of these new PMC Indore 1.0 7,500
projects have financial
Palladium Ahmedabad 0.7 8,000
closure
Phoenix Mills total 4.0 42,000
Prestige Estate
Falcon City Bengaluru 1.3 7,620

However, reassessment of Forum Thomsun Kochi 1.1 6,360

risk by lenders, Forum Rex Walk Bengaluru 0.2 1,440
construction challenges Prestige Estate total 2.6 15,420
and delayed recovery could Oberoi Realty
push their timelines by 1-2
Skycity MMR 1.6 8,000
years
Worli MMR 1.0 5,080
Oberoi Realty total 2.6 13,080
Brigade Enterprise
Orion Uptown Bengaluru 0.27 1,935
Brigade Enterprise total 0.27 1,935
Source: Anarock, HSIE Research

Page | 14
Sector Thematic: Real Estate - Retail

FY21/22E to be a tough year for the retail mall sector

 Hit by the pandemic, most of the malls were closed for 2-3 month and have now
Malls across the country
gradually opened. Developers have extended reliefs to the tenants to survive
have reopened after being
during these times.
shut down in the lockdown
period  Malls have the running debt as LRDs, whose serviceability is contingent on the
rental collections. Whilst large organized retail mall operators with solid financial
backing and liquidity may sustain these near-term headwinds, a few cases may
face distress.

 The RBI's recent policy allows one-time corporate restructuring for segments hit
To support retailers, malls by COVID-19, which may provide some relief to the retail sector as well. We
gave rent waivers during await the detailed RBI policy but believe that COVID-19 is the key factor for mall
the lockdown and have closure and, hence, the sector may be a beneficiary of OTR. Now it depends on
reduced MG until banks whether they will extend the same to stronger operators as they may have
consumption reverts to to take a 15% initial hit on loan value.
pre-COVID level  In the exhibit below, we highlight rental relief offered to tenants by the landlords.
We expect FY21E rent collections to be in the range of 25-55% across mall
operators.
Rent concessions given to retailers could hurt mall operators in the short term
Company GLA (msf) During the lockdown After the lockdown
This would impact ability
of mall operators to service 45-55% of MG waived off; discussion Concessional MG on case to case basis
with multiplexes & F&B operators are and higher rev share for 1-2 quarter; will
their LRD loans (backed by Phoenix 6.86 still on; rent to be recovered in a return to original rental terms once
rentals) staggered manner over July to retailers reach 75-80% of last year
September consumption
A complete waiver on rent; CAM Discussion with retailers are still on,
Prestige 4.27
charges covered as actual clarity by mid-August
MG waived off for the period with MG at a concessional rate with a higher
DLF 4.25
certain conditions revenue share from retailers
Large developers, with
50% waiver on rent; CAM charges Reduced MG rent and higher revenue
strong balance sheets, Brigade 1.04
recovered at a cost share till September
could sustain the decline in Retailers did not pay anything during
Oberoi 0.55 Still in wait and watch mode
rental collection but 1QFY21
developers with weak Have given a concession to retailers Further relaxation to depend on
Nexus 5.30
financials may feel the on case to case basis consumption recovery

stress Selective concessions given on case to

Xander 5.20 Ongoing discussions with retailers
case to case basis
Total 27.47
Source: Company, Industry sources, HSIE Research

Pre-COVID revenue share

Category Revenue share
Fashion 12-15%
Supermarket 3-5%
Electronics 2-4%
Department stores 8-10%
International department stores 7-8%
F&B (smaller counter) >15%
F&B (speciality restaurant) 10-15%
Multiplexes 6-7%
Jewellery 2-3%
Watches 5%
Services & spa 10-15%
Source: Industry sources, HSIE Research

Page | 15
Sector Thematic: Real Estate - Retail

Tough times may not last; credit agencies remain investment

grade on malls
For large malls, we have highlighted rating rationale as per the reports available from
the credit rating agencies. We have collected data for 24 rated malls, of which about
17 have A rating (71% of the universe). Of the total 47 malls data that we have, the A-
rated universe is 36%. The detailed key rationale for each of the malls is highlighted
in the exhibit below and covers both unlisted and listed players, viz., Blackstone,
Xander, DLF, Prestige, and Phoenix.
The credit rating of malls
Credit Rating/
Mall name/
SN. (FY19 Rental) Rating Rationale Highlights
Promoter/City

 'Negative' outlook reflects possible impacts of the Covid-19 pandemic

 Developing phase-2 (2lsft); currently developing the 1st floor of 3 floors. Construction is
Ahmedabad One expected to be completed by Aug-20 at a for Rs 96 crore.
(0.72msf) CRISIL  Vacancy is 8.2% as of Aug-19; temporary phenomenon as vacant space is under fit-out;
A+/Negative maintained ~100% occupancy for the 5 years through FY18
1
Blackstone  Top 10 tenants occupy close to 52%
 Prime area but competition from established main streets in the city
Ahmedabad  ~50% of the agreements would be up for renewal over the next 3 fiscals
 D/E = 1.44 & Interest coverage = 4.74 (FY19)
 DSCR of 1.6; DSRA of 1 month of interest & 1 quarter of principal
 'Negative Watch' reflects possible impacts of the Covid-19 pandemic
 Favourable location - Aundh is an affluent suburb in Pune; nil competition due to absence of
nearby malls. Proximity to the M-P expressway and CBD
Westend (0.42msf)  Low renewal risk as no leases coming up over the next three years
ICRA A-/  Developing an IT park above the mall with a total leasable area of ~2.5 lsf; ~18% of the project
Negative Watch cost left to be incurred; commitments at ~45%
2 Blackstone
 Repayment towards promoter NCDs and redemption of preference shares would require Rs.
160 crores by December 2021 and the same is expected to be funded by future LRD against the
Pune rentals of the IT park.
 Top five tenants contribute ~31% of rental revenue
 Debt/EBITDA = 9 & Interest coverage = 1.3 (FY19)
 DSCR of 1.5; DSRA covering two months of debt
 Nascent stage of the mall operations, weak coverage ratios, high leverage
Seawoods Grand  SGC is India's largest Transit Oriented Development (TOD)
Central (0.98msf)  Average monthly footfall for the period FY19 was around 7.01 lakhs, and for the period Apr-19
BWR BBB-
to Jan-20 was around 8.47 lakhs.
/Stable
3  330 stores, 1800 parking spaces and 2100 food court seating
Blackstone
 D/E increased to 6.76 times as of Dec-2019 on account of the additional debt availed for Phase II
payments
Navi Mumbai  The proceeds of the NCDs have been used for the purchase of the Seawoods Grand Central
mall from L&T
 'Negative' outlook reflects possible impacts of the Covid-19 pandemic
 It owns and operates the Elante Mall, the Elante office complex, and the Hyatt Regency hotel in
Elante (1.15msf) Chandigarh
 53% of the mall leases to come up for renewal over the next 3 years
CRISIL  Top 10 tenants occupying around 40% area and contributing to 27% of MG
Blackstone
A+/Negative  New agreements with tenants for around 12% of the total leasable area over the 20 months
4
through January 2020 were entered with 30% MTM
Chandigarh
 Office complex (4.24 lsf) - 2.99lsf has been sold, while about 55% of the remaining space was
leased as of Jan-20
 Comfortable LTV of around 40%
 DSRA covering three months of debt servicing obligations.
 D/EBITDA = 1.57 & Interest coverage = 1.52 (FY19)
Treasure Island
(0.4msf) BWR A-  Joint Venture between Blackstone Group & Chhabra Group
(SO)/Stable  It was under significant refurbishment during FY15 and FY16 and reopened to the public in Q4
5
Blackstone (Withdrawn FY16
May-19)  105 stores, one multiplex, 500 parking spaces and 225 food court seating
Indore

Page | 16
Sector Thematic: Real Estate - Retail

Mall name/ Credit Rating/

SN. Rating Rationale Highlights
Promoter/City (FY19 Rental)
 Negative Watch' reflects the possible impact of the COVID-19 pandemic.
 The favourable location of the mall
Next Treasure  The occupancy levels of the mall remain ~82% as on Mar-20.
(0.2msf)  The company could not tie up any incremental leases between Oct-18 and Aug-19 on account of
ICRA BBB+/ a freeze on new leasing due to a pending litigation
Negative Watch  Started new leasing tie-ups for the balance area, which is expected to improve the rental
Blackstone
6 revenue. Leasing is expected to be ~95% by end-FY21.
 No major renewals are falling due over the next three years.
Indore  Faces competition from similar retail assets & established main streets.
 Top five tenants contribute ~73% of rental revenue.
 Weak profitability and consequently debt coverage indicators in past
 D/EBITDA = 11 and Interest coverage = 0.8 (FY19)
 DSCR of 0.7; DSRA covering two months of debt
 Negative Watch' reflects the possible impact of the COVID-19 pandemic.
Esplanade (0.5msf)  The favourable location of the mall and resultant healthy footfalls
 No major renewals due in the next one and a half years,
ICRA A-
 The company holds office and hotel space inventory located on the same premises and the
Blackstone /Negative
erstwhile promoters currently manage it.
7 Watch
 Top five tenants occupying close to 56%
Bhubaneshwar
 Competition from other 1 existing and upcoming malls in Bhubaneswar
 Cumulative cash flow coverage indicator remains adequate
 D/EBIDTA = 10.9 & Interest coverage = 1.3 (FY19)
 DSCR of 1,3; DSRA covering 2 months of debt
 Mixed-used development project - office space (0.87msf), a mall (0.43msf), a 415-key hotel &
Pavillion(0.4msf) windmills; contributing 51%, 31%, 17% and 1% to revenue, and 29%*, 52%, 17% and 1% to the
EBITDA
 FY20 Occupancy rate for office space – 100%, mall - 97-98% & hotel – 67%
Blackstone IND AA-/Stable
 Not availed any moratorium; LTV was below 35% at FY20
8
 Gross and Net leverage is likely to remain acceptable around 3.5x and 2.5x, respectively, in
Pune
FY21 (FY20: 2.4x, 1.9x)
 DSRA covering three months of interest servicing for the bonds
 DSCR to remain above 1.40x over FY21-FY25
 Top four lessees account about 52% of the combined leased area
VR Punjab (1msf)  An exclusive charge secures LRD facility over the mall
 The additional available leasable area of 0.64 million sf) is located in Mohali
Xander & APG  As on May-19, 84.9% of the area (including under fit-outs) was occupied
IND BBB-
9  5-6% of the leased area is coming up for renewal till FY22.
(SO)/Stable
Chandigarh  Mall houses over 150 reputed retailers and has nine PVR screens
 LTV at ~40%; DSRA covering around four months of payment obligations
 Both DSCR and LTV ratios are in line with the benchmark levels expected
VR Bengaluru (0.47  Healthy revenue is generated by the Bengaluru and Chennai malls backed by healthy
msf) occupancy and reputed clientele, and moderate debt protection metrics
 Bengaluru Mall is located in the Dyvasandra Industrial Area and has 0.47msf retail space,
Xander & APG 0.05msf office space, & a 54-room hotel. The Chennai mall is in Anna Nagar and has 0.95msf
CRISIL
retail space, 0.02msf in office space, and a 20-room hotel.
BBB+/Negative
Bengaluru  The Bengaluru assets have been operational since October 2015 and have healthy occupancy of
10 Watch
90% in the retail space, 93% in office space, and 65% in hotel space.
VR Chennai (0.95 msf)  In Chennai, the retail mall and office space became operational in Jun-18 and have an
occupancy of 90% and 82%; hotel to commence operations shortly.
Xander & APG  Less than 5% of the leased area is coming up for renewal over the next 3 years.
 DSCR is expected to be above 1.0 time over the medium term: ICR 0.52 (FY19)
Chennai  Sugam has availed moratorium from its lenders for part of its bank debt
 Healthy cash cover (net rental/interest) for the senior NCD
 ISRA equivalent to one quarter of interest payment.
VR Ambarsar  The moderate occupancy level of 60% as on Jun-19
 Around 35% of the leases are falling due for rental escalation within the next 22 years
 Low occupancy has led to under-recovery of CAM affecting the operating profits.
Xander ICRA A(SO)/
 Located within the new city centre of Amritsar, adjoining the high-end residential areas; spread
11 Negative Watch
over 8 floors of the shopping complex
Amritsar
 Refinancing options available for rental assets in the form of LRD loans.
 The mall has a food court (seating capacity of 800), multiplex (6 screen facility operated by
Satyam- INOX currently), departmental stores (Lifestyle, Pantaloon, etc.), retails stores (over
120 outlets), hypermarket (Big Bazaar), and entertainment zones.
 D/E = 12.7 and Interest coverage = 0.2 (FY19); D/EBITDA = 44

Page | 17
Sector Thematic: Real Estate - Retail

Credit Rating/
Mall name/
SN. (FY19 Rental) Rating Rationale Highlights
Promoter/City

 The rating derives strength from adequate liquidity available with the company, healthy
VR Surat occupancy level, aided by favourable location and company being part of VR group
 The rating continues to derive strength from ring fencing of lease rentals of VR Surat Mall
CARE A-
12 Xander through an escrow mechanism supported by presence of DSRA and diversified client base
Negative Watch
 Negative implications’ on account of shut down of the mall since mid of March 2020
Surat  Cash flows are expected to weaken in Q1FY21 as tenants are likely to seek waiver or deferment
of rent till normalization of activity
DLF Avenue,
 ICRA has taken a consolidated view of DCCDL and all its assets
 Comfort from 2 strong promoters – DLF & GIC
DLF Promenade  The operational leasable area of the group increasing to 30.3 mn. sq. ft. in FY20
 DCCDL's office portfolio has remained mostly unaffected by COVID.
ICRA AA-
13 & DLF Emporio  Group's retail portfolio 3.9msf has been significantly impacted.
/Stable
 Current organic development potential of DCCDL stands at ~29.5 mn. sq.ft, over and above the
DLF on-going development of ~ 7.1 mn sq.ft.
 Sufficient liquidity coupled with management's stated intent to maintain overall debt at the
current level resulting in a moderation of NOI/debt to 4x.
NCR
Forum Sujana
 Corporate guarantees provided by Prestige Estate Projects Limited to each
(0.82msf)
 Prestige Group currently operates 10 malls (4.3msf); strong track record
 The company has significant repayments over the next 2.5 years, at close to Rs. 2,000 crore per
Prestige annum, at the Group level. The company will be reliant on refinancing to the extent of
corporate debt and construction loans.
Hyderabad  Nevertheless, the annuity income portfolio provides financial flexibility to PEPL because, at the
Group level, the leverage is moderate with debt-to-annualised rental income of 4.4 times, which
mitigates the refinancing risk to an extent.
Forum Shantiniketan  Company has access to undrawn LRD loan of over Rs 400 cr with other sanctioned construction
(0.62msf) finance and Capex loans which are available for drawdown for the identified projects.
 Sujana: moderately high leverage for Rs 5.5bn LRD of 6.3 times of annual gross rental income.
14 ICRA A+(CE)/
Debt coverage metrics to remain comfortable. It is located in Kukatpally. It enjoys steady
Prestige Stable
demand from a large catchment of the residential area surrounding the mall. Healthy
occupancy of ~100% over the past three years. Interest coverage = 2.8; D/EBITDA = 3.2; DSCR =
Bengaluru 1.1.
 Shantiniketan: With many IT/ITES offices situated nearby, and dependent residential
Forum City Centre developments, Whitefield has become a significant micro-market within the Bangalore RE
(0.31msf) market. The demand is expected to be localised and dependent on residents and people
working in Whitefield/ITPL/Mahadevpura. Interest coverage = 0.82; D/EBITDA = 45.48; DSCR =
Prestige 0.82.
 Forum City Centre: The company has also entered into a lease agreement with PVR, with the
Mysore rent commencement expected during FY21. DSRA covering three months of debt obligations.
~100% occupancy over the past 2 years. Interest coverage = 1.1; D/EBIDTA = 9.3; DSCR = 0.3.

 Negative Watch' reflects the possible impact of the COVID-19 pandemic.

 51:49 subsidiary of TPML and CPPIB
 Group has availed moratorium from its lenders for 6 m
 Stable cash flow supported by healthy mall occupancy (90% over 4 years) and a diverse and
PMC Bengaluru (1msf) reputed clientele, and strong debt protection metrics
 Successfully renewed/entered into new agreements with tenants for 19% of the total leasable
CRISIL A/
15 Phoenix Mills area during FY19, at significant MTM gains.
Negative Watch
 Large scale and attractive catchment area
Bengaluru  70% of the agreements will be coming up for renewal over the next 3 fiscals.
 Top ten tenants occupy 39% of the area
 DSCR of well over 1.3 times over the tenure of the debt. DSRA of Rs 15 crore, to be maintained
throughout the loan tenure.
 DSCR: 1.68, D.E = 0.97, Interest Coverage = 3.16 (FY19)
 Negative Watch' reflects the possible impact of the COVID-19 pandemic.
 Maintained occupancy of over 90% for the past three fiscals
PMC Pune(1.2msf)  Successfully renewed/entered into new agreements with tenants for 11% of the total leasable
area during fiscal 2019, with MTM gains
CRISIL A/
16 Phoenix Mills  Top ten tenants occupy only around 32% area, ensuring low concentration
Negative Watch
 DSRA of Rs 29.5 crore which is equivalent to 3 months of debt servicing
Pune  Well-diversified clientele and had healthy occupancy of 96% as of March 2019.
 Substantial 53% of agreements will be up for renewal in the three fiscals
 DSCR = 1.22; D:E = 2.91, Interest Coverage = 2.38 (FY19)

Page | 18
Sector Thematic: Real Estate - Retail

Credit Rating/
Mall name/
SN. (FY19 Rental) Rating Rationale Highlights
Promoter/City

 Negative Watch' reflects the possible impact of the COVID-19 pandemic.

PMC Mumbai  Phoenix Market City (1.14msf), Mumbai, and office space, Art Guild House (AGH – 0.4msf, 90%
(1.14msf) occupancy).
 DSRA of INR200 million to cover three months of interest and principal
IND A-/
17  As on 31 December 2019, about 94% of the PMC leasable area occupied.
Phoenix Mills Negative Watch
 Ind-Ra has assumed that AGH would achieve occupancy of 95% by FY21-22
 LTV at 35-40% at end-FY20
MMR  Company has availed RBI moratorium.

 Negative Watch' reflects the possible impact of the COVID-19 pandemic.

In Ind-Ra's stabilised scenario, the net cash flow has an adequate DSCR of 1.15x-1.20x. LTV of
43.56%. 6-month moratorium availed
 DSRA of 3 months of interest and principal obligation (about INR303mn)
PMC & Palladium  PMC is one of the largest malls in Chennai with occupancy of 98.5%.
(1.22msf)  Rental rates are higher than the average rates in the micro-market In FY19
 Rental income, consumption and trading density of the mall stood at INR1.53 billion, INR11.07
Phoenix Mills IND BBB+/ billion and INR1,394/sf/month, respectively. Moreover, rental income, consumption and trading
18
Negative Watch density increased at a CAGR of 12.1%, 9.8% and 4.4%, respectively, over FY14-FY19.
Chennai  10 marquee anchor tenants (including multiplex), nine mini-anchor tenants and 202 inline
tenants (including hypermarket, entertainment centre and food court) that contribute 17.3%,
6.4% and 76.3% to Ind-Ra's base case rental
 The top 20 tenants contribute 36.9%
 Total rental income accounting for only 13.7% of the total trading consumption of the mall,
Classic Mall is one of the most profitable malls for the tenants.
 The mall is well connected with the city's CBD (5km)
 Negative Watch' reflects the possible impact of the COVID-19 pandemic.
Phoenix United  86% occupied as of March 2019. Top ten tenants occupy close to 50% area.
(0.35msf)  Successfully renewed/entered into new agreements with tenants for 28% of the total leasable
area during FY19, with MTM gains. Availed 6m morat.
 A significant proportion of total rentals is generated through RS income
Phoenix Mills CRISIL A-/
19  There are few large format malls currently being developed in Lucknow, which may affect
Negative Watch
footfalls that PUM enjoys and impact retailers' income.
Lucknow
 45% of the agreements coming up for renewal over the 3 fiscals through 2022.
 DSRA covering one-quarter of debt servicing obligation. (Rs 3.5 cr)
 Upcoming annual debt obligation of Rs 7-8 crore in the three fiscals
 DSCR = 1.51; D:E = 0.97, Interest Coverage = 3.16 (FY19)
 Negative Watch' reflects the possible impact of the COVID-19 pandemic. Availed 6m morat.
Phoenix United  About 91% of the leasable area had been leased out as of March 2019
(0.31msf)  About 18% of the area was up for renewal in fiscal 2019
 DSRA covering one-quarter of debt-servicing obligation – Rs 4.13cr
Phoenix Mills CRISIL BBB/  Significant proportion rentals are generated through RS income which is not as stable as
20
Negative Watch guaranteed rentals.
Bareilly  56% of the agreements will be coming up for renewal over the next three fiscals
 DSCR was 1.04 times in FY19 and is expected to remain above 1.0 time
 Repayment obligation of Rs 7-9 crore per fiscal in the three fiscals through 2022
 D:E = 2.36, Interest Coverage = 1.51 (FY19)
Source: CRISIL, ICRA, India Ratings, Company, HSIE Research

Rating distribution among malls

Rating No of Rating
AA- 4
A+ 4
A 3
A- 6
BBB+ 4
BBB 1
BBB- 2
Not rated 23
Total 47
Source: CRISIL, ICRA, India Ratings, Company, HSIE Research

Page | 19
Sector Thematic: Real Estate - Retail

Key risks
Pandemic has upended the  Work from home –our interactions with large occupiers suggest there could be a
real estate market, structural shift to work from home. This shift has a further implication; the
particularly retail and millennials and medium to bulge bracket employees could move to Tier 2 cities
commercial or go back to their hometowns. Their move may have a catastrophic impact on
the urban population and consumption. The second-order impact may result in
lower rents and rental cap rate expansion due to the risk associated with high
Capex asset class.
We are likely to see some
structural changes and
 Sustained delay in footfall recovery - Hit by the pandemic, consumers have got
used to or developed the habit of shopping online. Some of the hardcore mall
existing trends are likely to
crowd has also shifted to online shopping. Whilst we believe that few categories
intensify
remain vulnerable and may improve profitability by moving a higher share
online, others like luxury categories (jewelry and watches) may not. Multiplexes
may gradually open, and consumers would once again prefer visiting them for
the experience they provide. OTT may not replace movie binging. Footfall trends
are still emerging, and any structural change in the shift from brick and mortar
Commercial office segment
retail to online may have a disruptive impact on the mall NOI growth.
is facing headwinds as
work from home is getting  Lenders remain wary of lending to retail malls - We have seen instances of
institutionalized projects where financial closures have happened, and banks have pulled back
disbursals as they expect most of the malls' incomes to halve in FY21E. This may
result in lower debt security cover and higher implied LTV ratio. Some of the
banks' credit risk departments have laid down stringent conditions on lending to
Consumption recovery at retail malls, which could lead to drying up of bank funds for malls. And also lead
malls could be slower as to lower LTV ratios and higher equity funding of the projects.
increasing number of
people sign up on online  COVID-19 has pushed the Retails REITs plan by at least two years - We expect
platforms malls to achieve FY20 monthly revenue run-rate from 3QFY22. This COVID-
induced setback is sentimentally negative for the sector as the absence of
liquidity, both on the debt and equity sides, may result in WACC and Cap rates
expansion for the sector. The stronger promoters may still be able to get equity
funding as long-term growth drivers on consumption remain intact.

The category-wise breakup of mall area

Category Area (% of GLA) Potential threat from an online shift
Department store 20-25% High
Food & beverages 15-20% Low
Multiplexes 8-10% High
Supermarket 5% High
Family entertainment centres 2-3% Low
Electronics 2% Medium
Others 35-45% Medium
Source: Industry sources, HSIE Research *Others include watches, jewellery, beauty & spa, home décor,
boutique shops, standalone apparel shops, accessories etc.

Page | 20
21 August 2020 Initiating Coverage

Phoenix Mills
Foot ‘falls’ – provides attractive entry BUY
In the past three months, Phoenix Mills Ltd (PML) has corrected 30% on the
CMP (as on 20 Aug 2020) Rs 649
back of (1) COVID-led mall closures, (2) concerns over work from home, (3)
Target Price Rs 828
likely correction in retail rents, and (4) concerns over the long road ahead to
normalcy. Financial concerns on likely equity dilution to meet FY21-22E cash NIFTY 11,312
deficit of Rs 6.2bn and the higher share of equity requirement for Capex assets
have led to further de-rating. However, we believe that consumption will
mean revert once the vaccine is in place. Strong market positioning, marquee KEY STOCK DATA
assets, and robust financial track record place PML in a position to tide over Bloomberg code PHNX IN
the current headwinds. We believe the company is 'ripe for consumption' and
No. of Shares (mn) 153
initiate coverage with a SOTP of Rs 828/sh.
 Mall rental highly linear to consumption growth: We have tried to map the MCap (Rs bn) / ($ mn) 100/1,326

larger mall categories universe growth with PML consumption growth and 6m avg traded value (Rs mn) 116
find high/significant linear relationship for the categories of apparels, 52 Week high / low Rs 980/465
grocery, entertainment, etc. Based on the aggregate categories' growth data,
we arrive at a regression coefficient of ~0.5x. This implies that, for categories
STOCK PERFORMANCE (%)
universe growth of 1%, PML consumption will see a 0.5% growth. With
3M 6M 12M
rising income levels, the consumption share increase may lead to PML's
revenue share being higher than the minimum guaranteed (MG) for the Absolute (%) 32.6 (24.1) 3.2
categories, which may result in the company realizing higher overall rental Relative (%) 8.5 (17.0) 0.9
CAGR. Though in the near term, consumption may remain muted.
 FY20-25E rental CAGR of 13% to be driven by new asset additions: PML SHAREHOLDING PATTERN (%)
has a development pipeline of five new malls for the next five years with a
Dec-19 Mar-20
varying timeline of completions. The Lucknow mall is already operational
while, Ahmedabad, Indore, Bengaluru, and Pune ones will be operational by Promoters 59.11 59.11
FY20-25E. We have built in 12-18 months of delay to factor in COVID-19 FIs & Local MFs 9.90 10.17
impact. The company's gross rental income is expected to increase from Rs
FPIs 25.74 25.74
10bn during FY20 to Rs 19bn at 13% CAGR whilst the economic share of
rentals is expected to grow from Rs 8.6bn to Rs 14.4bn at 11% CAGR over Public & Others 5.25 4.98

FY20-25E. This shall be achieved through a mix of growth and potential Pledged Shares 0.0 0.0
escalations/repricing. Source : BSE
 Balance sheet stable, borrowing costs trending down: PML balance sheet is
robust as large part of debt is secured by LRDs. On the back of strong
financial performance, PML has one of the best interest rates vs peers and
has seen a decreasing trend in the past six years on interest costs. Net D/E is
stable at 1.2x as of FY20. A huge part of the debt is for retail malls.
 Residential inventory monetization key for further re-rating: PML has a
(nearing completion) residential inventory of Rs 14bn, monetisation of
which may take off the pressure on retail malls Capex and bridge the cash
shortfall of Rs 6.2bn over FY21-22E. The company also has office portfolio of
Rs 2bn with a robust development pipeline. We await more detailed plans Parikshit D Kandpal, CFA
on new office Capex timelines and financial tie-ups. We currently capture parikshitd.kandpal@hdfcsec.com
the same as 10% NAV premium (Rs 75/sh). +91-22-6171-7317
Financial summary*
Year Ending March (Rs mn) FY17 FY18 FY19 FY20 FY21E FY22E FY23E Chintan Parikh
Net Sales 18,246 16,198 19,816 19,411 10,643 18,969 21,972 chintan.parikh@hdfcsec.com
EBITDA 8,469 7,776 9,931 9,671 4,611 9,717 12,214 +91-22-3021-7330
APAT 1,673 2,423 4,211 3,347 (435) 2,615 4,224
Diluted EPS (Rs) 10.9 15.8 27.5 21.9 (2.84) 17.1 27.6
Rohan Rustagi
P/E (x) 59.4 41.0 23.6 29.7 (228.4) 38.0 23.5
EV / EBITDA (x) 15.9 17.9 14.4 14.8 31.6 15.4 12.1 rohan.rustagi@hdfcsec.com
RoE (%) 8.6 8.1 12.2 8.4 (2.1) 6.1 9.7 +91-22-3021-7355
Source: Company, HSIE Research, * Consolidated

HSIE Research is also available on Bloomberg ERH HDF <GO> & Thomson Reuters
Phoenix Mills : Initiating Coverage

We have looked at revenue Mall rental growth has high linearity with consumption growth
growth of some of the We have tried to map the categories universe growth with PML consumption growth
clients that occupy PML and find high/significant linear relationship for the categories of apparels, grocery,
malls entertainment, etc. As consumption share increases with rising income levels, it may
lead to revenue share being higher than MG for these categories. PML may witness a
higher overall rental CAGR. In terms of rising aspirations, we are seeing a post-
COVID trend of consumers looking to ramp up spends on personal wellbeing and
personal consumption, which bodes well for PML.
Revenue growth of these
retailers and consumption Retailers growth and PML growth (%)
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
growth at PML malls have
high correlation across Apparel 86 64 74 30 29 59 13 11 0
Beauty & spa 7 10 2 4 14 58 5 0 (7)
categories
Department store 110 21 19 73 17 12 17 10 14
Entertainment 30 30 60 49 9 23 12 12 23
Food & beverages 26 43 32 23 16 14 9 18 (10)
Footwear 15 19 (7) 27 23 (4) 8 4 8
Grocery 167 58 58 19 4 82 72 7 14
Jewellery & accessories 47 33 16 36 14 1 8 22 16
We expect PML to benefit
Total 57 34 26 37 16 22 22 13 11
from rise in consumer
PML consumption growth YoY 80 66 97 57 22 10 7 9 9
spend after consumption Source: Ace Equity, HSIE Research
normalizes
Overall
60%

50%
y = 0.4892x + 0.1279

40%

30%

20%

10%

0%
0% 10% 20% 30% 40% 50% 60% 70% 80%

Source: Ace Equity, HSIE Research

Correlation coefficients
1.00
0.80
0.60
0.40
0.20
-
(0.20)
(0.40)
Department store
Apparel
Retailers total growth

Beauty & spa

Footwear
Entertainment

Grocery
Food & beverages

Jewellery &
accessories

Source: Ace Equity, HSIE Research

Page | 22
Phoenix Mills : Initiating Coverage

Repricing opportunity across the portfolio

A large part of the asset Retail assets % FY21E FY22E FY23E Total
portfolio is coming up for HSP & Palladium 16% 12% 24% 52%
renewals over FY21-23E. In PMC Kurla 24% 34% 13% 71%
this challenging PMC Pune 20% 19% 16% 55%
environment, it may be
PMC Bangalore 26% 38% 11% 75%
difficult to achieve the re-
PMC Chennai 20% 31% 25% 76%
pricing potential and PML
may have to continue with Source: Company, HSIE Research

some reliefs to tenants.

Though currently the Under-construction retail assets
rental negotiations have Cumulative
Leasable Capex
been deferred for few Project Capex Tentative
City Area Remaining Status
Name incurred commissioning
months (mn sqft)
(Rs mn)
(Rs mn)

Excavation
completed and
PMC
Pune 1.1 4,646 3,854 work done till 1HFY24
Wakad
lower ground floor
slab for part - 1
Excavation
completed and
PMC foundation and
Bengaluru 1.2 8,396 9,604 1HFY24
Hebbel basement
slab work almost
Key assets under complete
The biggest retail
construction provide
destination of
growth potential to PMC Indore 1.0 3,118 4,382 Madhya Pradesh; 1HFY23
overall portfolio Work level is at an
advanced stage
95% excavation
Palladium Ahmedabad 0.7 4,598 3,402 1HFY23
work completed
Palassio Lucknow 0.9 Completed 2QFY21

Total 4.9 20,758 21,242

Source: Company, HSIE Research

Page | 23
Phoenix Mills : Initiating Coverage

Gross retail assets rental potential

(Rs mn) FY20 FY21E FY22E FY23E FY24E FY25E
HSP Phoenix 3,486 1,496 3,419 3,755 3,975 4,155
We forecast that PML’s
Market Cities:
gross rental revenue would
MC Kurla (S) 1,273 519 1,218 1,308 1,373 1,442
increase to Rs 19bn by
FY25E (+90%). This will be MC Pune (S) 1,681 657 1,618 1,718 1,824 1,916

achieved through a mix of MC Bangalore East (S) 1,472 890 1,434 1,505 1,581 1,660
escalation in operational Chennai MC (A) 1,822 759 1,813 1,946 2,110 2,215
assets rental and new CPPIB – Bengaluru - - - - 1,711 2,275
additions of under- CPPIB – Pune - - - - 490 1,303
construction assets CPPIB – Indore - - - 424 1,069 1,123
Ahmedabad – Bsafal - - - - 407 1,100
Lucknow - Gomti Nagar - 468 1,106 1,225 1,287 1,351
Total MC 6,248 3,293 7,187 8,126 11,851 14,384
PUM Lucknow (BARE) 318 176 267 301 301 346
PUM Bareilly (BARE) 224 124 217 244 244 281
BARE Total 542 299 485 545 545 627
Total Lease Rentals (Rs mn) 10,275 5,088 11,091 12,426 16,371 19,166
YoY Growth (%) -50% 118% 12% 32% 17%
Source: Company, HSIE Research

Gross Retail rental income ramp up by FY25

20 Rs bn 1 19
1
For FY20-25E, we model 18
1 1
for gross rental CAGR of 16
2
13% 14 13% CAGR
2
12
10
10
8
Ahmedabad - Bsafal
CPPIB - Indore

Lucknow - Gomti
CPPIB - Pune
CPPIB - Bengaluru

Retail Reantal by FY25

FY20 Retail Rental

Escalation/Renewal in
from Operational

Operational assets

Nagar
Assets

Potential

Source: Company, HSIE Research

Page | 24
Phoenix Mills : Initiating Coverage

Retail rental-PML economic interest

Asset-wise rental (Rs mn) FY20 FY21E FY22E FY23E FY24E FY25E
projection is highlighted in HSP Phoenix 3,486 1,496 3,419 3,755 3,975 4,155
the exhibit. We have Market Cities:
assumed 12-18 months MC Kurla (S) 1,273 519 1,218 1,308 1,373 1,442
delay in under-
MC Pune (S) 1,681 657 1,618 1,718 1,824 1,916
construction assets
MC Bangalore East (S) 750 454 731 768 806 846
completion. We expect
Chennai MC (A) 911 380 907 973 1,055 1,108
PML economic interest to
translate to rentals CPPIB – Bengaluru - - - - 872 1,160

increasing from Rs 8.6bn in CPPIB – Pune - - - - 250 665

FY20 to Rs 14.4bn in FY25E CPPIB – Indore - - - 216 545 573

Ahmedabad – Bsafal - - - - 204 550

Lucknow - Gomti Nagar - 468 1,106 1,225 1,287 1,351

Our assumptions on rental
Total MC 4,616 2,477 5,579 6,208 8,216 9,610
escalation are conservative
PUM Lucknow (BARE) 318 176 267 301 301 346
over near to medium term
PUM Bareilly (BARE) 224 124 217 244 244 281
due to COVID-19
pandemic. We have BARE Total 542 299 485 545 545 627

factored in 4-5% annual Total Lease Rentals (Rs mn) 8,643 4,273 9,483 10,508 12,736 14,392
escalation for base YoY Growth (%) -51% 122% 11% 21% 13%
business rentals

Retail rental income ramp up by FY25 (PML economic interest)

16 Rs bn 14
1
14 1
1 1
12 1
1
10 11% CAGR
For FY20-25E, we model 9
for PML a share of rental 8
CAGR of 11% 6
Ahmedabad - Bsafal
CPPIB - Indore

Lucknow - Gomti
CPPIB - Pune
CPPIB - Bengaluru

Retail Reantal by FY25

FY20 Retail Rental

Escalation/Renewal in
from Operational

Operational assets

Nagar
Assets

Potential

Source: Company, HSIE Research

Page | 25
Phoenix Mills : Initiating Coverage

Consumption growth has plateaued

Consumption (Rs bn) YoY Growth % (RHS)
Consumption growth has 80.0 60
plateaued as assets mature 70.0
and partly on account of 50
60.0
COVID-19 lockdown 40
during second half of 50.0

4QFY20 40.0 30
30.0
20
20.0
10
10.0
- 0

FY13

FY14

FY19

FY20
FY15

FY16

FY17

FY18
Source: Company, HSIE Research

Rental Income Growth

Rental Income Rs bn YoY Growth % (RHS)
Rental income growth also
impacted by COVID-led 12.0 40
lockdown during the 10.0
35
second half of 4QFY20 30
8.0
25
6.0 20
15
4.0
10
2.0
5
- 0
FY13

FY14

FY15

FY19

FY20
FY16

FY17

FY18

Source: Company, HSIE Research

Page | 26
Phoenix Mills : Initiating Coverage

PML enjoys one of the Balance sheet – stable, borrowing costs trending down
lowest borrowing costs PML's balance sheet is strong, with a large part of the debt secured by LRDs. On the
amongst the peers
back of strong financial performance, the company has one of the best interest rates
vs peers. We have seen a decreasing trend in the company for the past six years on
interest costs.

FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20

A strong track record of
Gross debt (Rs bn) 22 34 34 36 41 40 45 46
timely mall delivery and
Cash (Rs bn) 1 1 1 2 6 0 2 1
quick ramp-up of
Net debt (Rs bn) 21 33 33 34 36 40 44 44
occupancies have helped
Net D/E 1.2 1.9 2.0 1.8 1.8 1.4 1.3 1.2
establish a robust
execution capability Effective cost of debt (%) 12.3% 11.8% 11.0% 10.2% 8.9% 9.4% 8.9%
NWC (Days) 398 248 273 289 328 275 150 169
Source: Company, HSIE Research

Effective Cost of Debt

15.0%

13.0% 12.3%
11.8%
11.0%
11.0% 10.2%
Net D/E has been reduced
9.4%
from 1.93x in FY14 to 1.2x 8.9% 8.9%
FY20, driven by higher 9.0%

profitability and right mix

of equity and debt in 7.0%

Capex
5.0%
FY15

FY17

FY18

FY19

FY20
FY14

FY16

Source: Company, HSIE Research

Net D/E Ratio

2.10 1.98
1.93
1.85
1.90 1.75
CPPIB investment for the
1.70
new under-construction
malls also resulted in 1.50 1.39
lower debt build-up 1.25
1.30 1.20

1.10

0.90

0.70
FY14

FY15

FY16

FY20
FY17

FY18

FY19

Source: Company, HSIE Research

Page | 27
Phoenix Mills : Initiating Coverage

PML has unsold (nearing Residential – Rs 14bn ready inventory monetisation key for
completion) residential re-rating
inventory of Rs 14bn with
pending collection of Rs PML has launched two projects (OBW Tower 1 to 7 and Kessaku) in residential
1.6bn. The total residual segment with a total saleable area of 2.83mn sqft, of which 1.58mn sqft had been sold
construction cost is Rs 1bn until FY20-end. While OBW Tower 1-6 is complete, the company plans to incur
Capex of ~Rs 1bn to complete OBW Tower 7 and Kessaku in FY21. PML is also
looking to reconfigure its luxurious offerings under Kessaku to align them with
We believe a large part of current requirements. The inventory of Rs 14bn and pending collection of Rs 1.6bn
the company’s inventory is provide enough liquidity to carry out the Capex plans. Besides, in the current
in the luxury real estate circumstances, the company is not planning to launch new projects in the residential
segment and hence will space. Hence, with the monetization of inventory and collection of pending dues, the
take time to get monetised residential segment could provide Rs ~15bn positive cashflow in the near term.
Residential projects
Saleable area (mn sqft)
PML has reconfigured the Project Name Area sold (mn sqft) Sales value (Rs mn)
Total Launched Balance
same to a smaller ticket
size and sales traction is One Bangalore West (OBW)* 2.41 1.80 0.61 1.31 12,724

awaited Kessaku, Bengaluru 1.03 1.03 0.00 0.27 3,672

Total 3.44 2.83 0.61 1.58 16,396

Source: Company, HSIE Research; *Of the total 9 towers planned, only 1-6 has been launched & completed,
PML has current office and tower 7 was launched in July '19
rental potential of Rs 2bn
and we have factored the
same into our valuation
Commercial – office rental of Rs 2bn, limited visibility on
future expansion as of now
Commercial rental
We have not ascribed any (Rs mn) FY20 FY21E FY22E FY23E
development value to Art Guild House 446 354 406 423
future office pipeline as its
Paragon Plaza 316 259 291 302
still in early stages of
Fountainhead Towers 1-3 1,131 986 1,292 1,442
conceptualization. We
have though given a 10% Commercial Rental 1,893 1,600 1,990 2,167

NAV premium for same in YoY Growth (%) -15% 24% 9%

overall PML valuation Source: Company, HSIE Research

Page | 28
Phoenix Mills : Initiating Coverage

Cashflow statement – we model for cumulative FY21-22E cash deficit of ~Rs 6.2bn
PML (Rs mn) FY21E FY22E
Inflows
Customer collections 2,298 2,947
We estimate FY21-22E
cumulative cash deficit of Rentals 5,088 11,091

Rs 6.2bn and hence fund Hospitality (net) 838 1,511

raise is imminent Property management (net) 2,165 3,711
Events/Other income/deposits 1,628 2,166
IPO/IPP Proceeds - -
Total inflow 12,017 21,426
A large part of the deficit
can be bridged by Outflows
postponing capex, in
Construction outflow 800 1,000
absence of fund raise
Corporate and staff 6,032 9,252
Construction/overheads total 6,832 10,252

Operational Cash flows 5,185 11,175

Interest payments 4,476 4,836

Income taxes (243) 705
Total financial outflows 4,233 5,541

Net cash flow (post interest) 952 5,634

Rental Capex
Office 500 500
Retail 3,300 7,000
Hotels
Total capex 3,800 7,500

Cash flow post capex (2,848) (1,866)

Land payments
Stake buyouts (Cessna and others)
Dividend paid 627 627
Principal Repayment 2,500 3,500
Capital outflows 3,127 4,127

Net inflows (5,974) (5,991)

Cash in hand ex DSRA 5,775 (199)

Net shortfall (199) (6,192)
Source: Company, HSIE Research

Page | 29
Phoenix Mills : Initiating Coverage

PML-owned assets
PML witnessed a 61% YoY decline in rental income during 1QFY21 on account of
lockdown and High Street Phoenix (HSP) remaining shut for the entire quarter. We
expect a gradual pickup in consumption as the mall has opened from 5 August 2020,
though weakness may persist as footfalls remain weak. Only genuine need-based
buyers are visiting the mall. We expect consumption to remain at subdued and sub-
25% levels with gradual ramp-up towards the festive season up to Diwali.
Quarterly Performance
1Q 1Q 4Q YoY QoQ YoY
FY20 FY19
FY21 FY20 FY20 (%/bps) (%/bps) (%/bps)
Rental Area (mn sqft) 0.77 0.77 0.77 - - 0.77 0.77 -
Rental Rate (Rs/sqft/month - 406 403 NA NA 401 388 3.4
Occupancy (%) 0% 93% 94% NA NA 95% 95% -
Trading Density
- 3,025 3,208 NA NA 3,167 2,943 7.6
(Rs/sqft/month)
Consumption (Rs mn) - 4,228 3,663 NA NA 17,103 17,044 0.3

Rental Income 344 881 780 (61.0) (55.9) 3,486 3,432 1.6
Recoveries 57 252 202 (77.4) (71.8) 959 974 (1.5)
Total Income 401 1,133 982 (64.6) (59.2) 4,445 4,406 0.9
EBITDA 269 780 797 (65.5) (66.2) 3,049 3,029 0.7
EBITDA margin on Rental
78% 89% 102% (1,034) (2,398) 87% 88% (79)
Income
EBITDA margin on Total
67% 69% 81% (176) (1,408) 69% 69% (15)
Income
Source: Company, HSIE Research

Phoenix Market City Bengaluru

Market City Bengaluru rental income fell by 67% YoY during the quarter as the mall
remained shut for a good part of 1QFY21. Since early June, Market City has resumed
operations with 82% GLA, and daily consumption had reached 38% as of June '20
level during the third week.
Quarterly Performance
1Q 1Q 4Q YoY QoQ YoY
FY20 FY19
FY21 FY20 FY20 (%/bps) (%/bps) (%/bps)
Rental Area (mn sqft) 0.98 0.98 0.98 - - 0.98 0.98 -
Rental Rate (Rs/sqft/month - 124 130 NA NA 129 119 8.4
Occupancy (%) 0% 97% 98% NA NA 97% 98% (100)
Trading Density (Rs/sqft/month) - 1,749 1,670 NA NA 1,795 1,680 6.8
Consumption (Rs mn) - 3,364 2,552 NA NA 13,140 12,843 2.3

Rental Income 120 359 307 (66.6) (60.9) 1,426 1,392 2.4
Recoveries 72 184 157 (60.9) (54.1) 703 678 3.7
Total Income 192 543 464 (64.6) (58.6) 2,129 2,070 2.9
EBITDA 135 385 297 (64.9) (54.5) 1,457 1,419 2.7
EBITDA margin on Rental Income 113% 107% 97% 526 1,576 102% 102% 23
EBITDA margin on Total Income 70% 71% 64% (59) 630 68% 69% (11)
Source: Company, HSIE Research

Page | 30
Phoenix Mills : Initiating Coverage

Phoenix Market City Pune

Rental income from Market City Pune fell by 71% YoY during the quarter. The mall
was closed for entire 1QFY21 and has reopened on 5 August 2020. We expect a slight
recovery from 2QFY21.
Quarterly Performance
1Q 1Q 4Q YoY QoQ YoY
FY20 FY19
FY21 FY20 FY20 (%/bps) (%/bps) (%/bps)
Rental Area (mn sqft) 1.13 1.13 1.13 - - 1.13 1.13 -
Rental Rate (Rs/sqft/month - 125 128 NA NA 128 116 10.3
Occupancy (%) 0% 98% 95% NA NA 96% 96% -
Trading Density (Rs/sqft/month) - 1,441 1,338 NA NA 1,453 1,334 8.9
Consumption (Rs mn) - 3,331 2,371 NA NA 12,593 12,207 3.2

Rental Income 125 432 350 (71.1) (64.3) 1,667 1,589 4.9
Recoveries 47 206 174 (77.2) (73.0) 778 793 (1.9)
Total Income 172 638 524 (73.0) (67.2) 2,445 2,382 2.6
EBITDA 118 440 324 (73.2) (63.6) 1,645 1,566 5.0
EBITDA margin on Rental Income 94% 102% 93% (745) 183 99% 99% 13
EBITDA margin on Total Income 69% 69% 62% (36) 677 67% 66% 154
Source: Company, HSIE Research

Phoenix Market City Kurla

Rental income came down by 73% YoY as the mall remained shut during the
lockdown period. The mall has reopened from 5 August 2020.
Quarterly Performance
1Q 1Q 4Q YoY QoQ YoY
FY20 FY19
FY21 FY20 FY20 (%/bps) (%/bps) (%/bps)
Rental Area (mn sqft) 1.1 1.1 1.1 - - 1.1 1.1 -
Rental Rate (Rs/sqft/month - 101 110 NA NA 106 98 8.2
Occupancy (%) 0% 93% 93% NA NA 92% 95% (300)
Trading Density (Rs/sqft/month) - 1,222 1,129 NA NA 1,226 1,174 4.4
Consumption (Rs mn) - 2,589 1,896 NA NA 9,791 9,559 2.4

Rental Income 87 323 283 (73.1) (69.3) 1,265 1,216 4.0

Recoveries 53 181 153 (70.7) (65.4) 736 750 (1.9)
Total Income 140 504 436 (72.2) (67.9) 2,001 1,966 1.8
EBITDA 78 323 242 (75.9) (67.8) 1,229 1,188 3.5
EBITDA margin on Rental Income 90% 100% 86% (1,034) 414 97% 98% (54)
EBITDA margin on Total Income 56% 64% 56% (837) 21 61% 60% 99
Source: Company, HSIE Research

Page | 31
Phoenix Mills : Initiating Coverage

Phoenix Market City Chennai

Market City Chennai witnessed a 66% YoY decline in rental income during the
quarter as the mall remained shut for 1QFY21.
Quarterly Performance
1Q 1Q 4Q YoY QoQ YoY
FY20 FY19
FY21 FY20 FY20 (%/bps) (%/bps) (%/bps)
Rental Area (mn sqft) 0.98 0.98 0.98 - - 0.98 0.98 -
Rental Rate (Rs/sqft/month - 139 139 NA NA 139 134 3.7
Occupancy (%) 0% 99% 96% NA NA 96% 93% 300
Trading Density (Rs/sqft/month) - 1,435 1,259 NA NA 1,363 1,394 (2.2)
Consumption (Rs mn) - 2,677 2,256 NA NA 11,255 11,068 1.7

Rental Income 134 394 385 (66.0) (65.2) 1,736 1,528 13.6
Recoveries 57 206 233 (72.3) (75.5) 943 862 9.4
Total Income 191 600 618 (68.2) (69.1) 2,679 2,390 12.1
EBITDA 124 437 346 (71.6) (64.2) 1,733 1,625 6.6
EBITDA margin on Rental Income 93% 111% 90% (1,838) 267 100% 106% (652)
EBITDA margin on Total Income 65% 73% 56% (791) 893 65% 68% (330)
Source: Company, HSIE Research

Operational retail assets

FY20 (Rs mn)
Retail Assets City GLA (mn sqft) Occupancy
Consumption Rental

HSP & Palladium Mumbai 0.77 95% 17,102 3,486

MC Kurla (S) Mumbai 1.14 92% 9,790 1,270

PMC Pune 1.19 96% 12,592 1,667

PMC Bengaluru 1.00 97% 13,140 1,426

PMC & Palladium Chennai 1.22 96% 11,538 1,809

PUM Lucknow 0.33 3,113 318

PUM Bareilly 0.31 2,033 224

Total 5.96 69,308 10,200

Source: Company, HSIE Research

Malls open during – 1QFY21

GLA (mn sqft) Avg. daily spend vs Jun'19
Asset Name City Operational (%)
Total Permissible Operational Week 1 Week 2 Week 3

PMC Bengaluru 1.00 0.83 0.67 81% 32% 35% 38%

Phoenix United Lucknow 0.33 0.27 0.23 85% 99% 82% 86%

Phoenix United Bareilly 0.31 0.25 0.22 88% 33% 29% 34%
Source: Company, HSIE Research

Page | 32
Phoenix Mills : Initiating Coverage

We initiate BUY on PML Valuation–NAV-based target price of Rs 828/sh

with NAV based SOTP of SOTP valuation
Rs 828/sh. We have
We initiate PML with a BUY and SOTP of Rs 828/sh. We have adopted the DCF
ascribed 10% NAV
methodology to arrive at PML's NAV/sh. We value the real estate business (annuity +
premium to factor in future
residential) at Rs 829/sh, hotels at Rs84/sh, office assets at Rs 43/sh and other assets
office development plans
(PUM Lucknow & PUM Bareilly) at Rs 46/sh. We do not ascribe any NAV discount to
PML as we have only valued the projects which have visibility over the next five
years. Subsequently, we reduce our valuation by Rs 250/sh to account for net debt of
Rs 38bn (PML's economic interest) We ascribe a 10% NAV premium to factor in the
potential office development pipeline. We arrive at NAV-based SOTP of Rs 828/sh.
Valuation summary
PML Share
Project name NAV - Rs mn PML stake of NAV - Rs Value (Rs/sh)
mn
High Street Phoenix 39,377 100% 39,377 257
Market Cities 87,397 571
Kurla Market City 15,262 100% 15,262 100
Pune Market City 18,453 100% 18,453 121
Bangalore East - Whitefield Market City 19,443 51% 9,916 65
Pune MC- Wakad 5,427 51% 2,768 18
Under construction
Rs/sh Bengaluru Hebbal Market City 13,905 51% 7,092 46
Malls GNAV
Pune-Wakad 18 Indore Market City 3,882 51% 1,980 13
Ahmedabad Market City 3,613 50% 1,807 12
Bengaluru-Hebbel 46
Lucknow - Gomti Nagar Market City 12,861 100% 12,861 84
Indore 13
Bangalore West - Malleswaram (OBW &
8,400 80% 6,720 44
Ahmedabad 12 Kessaku)
GNAV 89 Chennai Market City 21,075 50% 10,540 69
Total 126,774 829
Add: Value of other assets/subsidiaries -
Shangri-La Hotel, HSP 17,507 73% 12,780 84
PUM Lucknow, BARE 3,591 100% 3,591 23
PUM Bareilly, BARE 3,530 100% 3,530 23
Office Assets 6,623 100% 6,623 43
Total 153,298 964
Less: Consolidated Net Debt - FY20
46,297 83% 38,195 250
(adjusted for Shangri-La CCDs)
Less: Balance for SPV stake buyouts - -
NAV 115,103 752
Premium for future development
11,510 75
pipeline – 10%
SOTP NAV 126,613 828
Source: Company, HSIE Research
Retail Malls- Key Assumptions
Mall Status WACC CAP Rate
HSP Phoenix Operational 12.0% 10.1%
MC Kurla (S) Operational 11.0% 9.0%
MC Pune (S) Operational 11.0% 9.0%
MC Bangalore East (S) Operational 11.0% 9.0%
PUM Lucknow (BARE) Operational 11.0% 9.0%
PUM Bareilly (BARE) Operational 11.0% 9.0%
Chennai MC (A) Operational 11.0% 9.0%
Lucknow - Gomti Nagar Operational 11.0% 9.0%
CPPIB - Bengaluru Under Construction 12.5% 10.5%
CPPIB - Pune Under Construction 12.5% 10.5%
CPPIB - Indore Under Construction 12.5% 10.5%
Ahmedabad - Bsafal Under Construction 12.5% 10.5%
Source: Company, HSIE Research

Page | 33
Phoenix Mills : Initiating Coverage

NAV Sensitivity Analysis

1% increase in WACC Sensitivity to WACC
impacts our NAV  Our model is sensitive to changes in WACC assumptions. In our base case, we
negatively by 4% have assumed WACC in the range of 11-12.5%. For every 1% change in WACC,
the NAV will change by approximately 4%.
% Change in WACC -2 -1 11-12.5 1 2

NAV (Rs/sh) 912 868 828 790 756

% Change in NAV 10 5 - -4 -9

Every 100bps increase in

CAP rate impacts our NAV Sensitivity of NAV to changes in CAP rate
negatively by 8%  In our base case, we have assumed a CAP rate in the range of 9-10.5%. For every
100bps change in the CAP rate, the NAV will change by approximately 8%.
% Change in CAP Rate -2 -1 9-10.5 1 2

NAV (Rs/sh) 1,003 905 828 765 713

% Change in NAV 21 9 - -8 -14

100bps increase in lease Sensitivity of NAV to changes in lease escalation rate

escalation rate increases  In our base case, we have assumed a lease escalation rate of 5%. For every 100bps
our NAV by 4% change in the lease escalation rate, the NAV will change by approximately 4%.
% Change in lease rental escalation rate -2 -1 5 1 2

NAV (Rs/sh) 760 793 828 863 900

% Change in NAV -8 -4 - 4 9

Page | 34
Phoenix Mills : Initiating Coverage

No listed history of Indian's Retail REITs – consumption sector

close proxy play
PML does not have a listed pure-play retail mall proxy for comparison; hence, it is
difficult to draw a peer group for the company. As per our analysis earlier, the
company is a derivative play on consumption; in the exhibit below, we juxtapose
PML's key financial parameters with the HSIE coverage universe. We believe the
current valuation ratios leave enough headroom for re-rating once consumption
picks up. PML is a well-placed proxy to ride the consumption re-rating.

Revenue CAGR EBITDA CAGR PAT CAGR EV

Company FY20- /EBITDA PE# RoE* RoCE*
5yr 10yr 15yr 5yr 10yr 15yr 5yr 10yr 15yr *
23E
FMCG

ITC 6 10 13 6 7 12 13 10 14 15 11 16 25 45

HUL 6 8 9 11 13 13 13 12 13 13 47 56 85 226

Nestle 6 9 12 10 7 10 12 12 10 14 54 63 71 74

Dabur 5 10 12 8 6 11 15 7 12 17 49 50 25 45

Britannia 9 12 13 11 16 26 21 17 30 21 49 45 32 43

GCPL 5 17 23 7 9 18 24 10 16 21 34 40 19 19
Marico 6 11 14 7 11 15 21 13 15 20 32 37 38 42

Colgate 4 8 11 7 8 10 14 8 7 14 32 40 54 65

Emami 7 10 18 4 5 11 22 1 11 21 22 26 25 23

Jubilant 14 25 30 7 17 24 35 26 27 47 42 59 28 28

UNSP 3 4 7 5 25 4 11 33 9 9 29 47 23 16

Radico 10 8 13 7 17 8 12 26 11 13 15 17 18 14
FMCG Average 35 41 37 53
Consumer
durable
Havells 12 15 21 7 8 13 20 10 12 22 34 41 17 21

Voltas 8 5 12 4 11 4 19 10 4 18 29 31 13 22

Crompton 26 NA NA 6 30 NA NA 40 NA NA 26 33 30 39
Symphony 16 19 29 2 10 15 NA 9 17 NA 26 33 28 42

V-Guard 7 19 21 8 14 17 22 20 21 26 26 32 19 20

TTK Prestige 9 NA NA 8 10 NA NA 13 NA NA 27 33 16 20
Consumer
28 34 20 27
durable average
Retail

Titan 12 16 NA 9 17 20 NA 13 20 NA 42 60 23 15
Avenue
31 38 NA 21 35 42 NA 45 51 NA 68 66 16 16
Supermarts
Trent 19 19 NA 10 59 32 NA 9 14 NA 36 176 7 9
- -
ABFRL 36 NA NA 4 45 NA NA NM NM NM 27 NM
6 10
V-MART 18 28 NA 11 17 20 NA 13 20 NA 25 39 18 18

Shoppers Stop -4 9 NA 1 -8 5 NA NM NM NA 8 NM NM NM

TCNS Clo 31 NA NA 4 17 20 NA 13 20 NA 22 39 23 15
Retail Average 33 76 14 10

Phoenix Mills 3 32 NA 4 4 29 NA 41 18 NA 15 38 8 9
Source: Company, HSIE Research, *FY20, #FY22E

Page | 35
Phoenix Mills : Initiating Coverage

Financials
Consolidated Income Statement
Year ending March (Rs mn) FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Net Sales 16,533 17,786 18,246 16,198 19,816 19,411 10,643 18,969 21,972
Growth (%) 14.1 7.6 2.6 (11.2) 22.3 (2.0) (45.2) 78.2 15.8
Material Expenses 2,567 4,725 4,404 1,319 2,189 1,959 783 862 948
Employee Expenses 915 1,233 1,403 1,473 1,615 1,655 1,573 1,651 1,734
Other Operating Expenses 5,186 3,957 3,970 5,630 6,080 6,126 3,676 6,739 7,075
EBIDTA 7,865 7,871 8,469 7,776 9,931 9,671 4,611 9,717 12,214
EBIDTA (%) 47.6 44.3 46.4 48.0 50.1 49.8 43.3 51.2 55.6
EBIDTA Growth (%) 15.9 0.1 4.9 3.4 4.4 (0.6) (13.0) 18.2 8.5
Other Income 312 312 472 556 851 585 614 645 677
Depreciation 1,681 1,773 1,953 1,983 2,042 2,076 2,586 2,661 2,781
EBIT 6,497 6,410 6,988 6,349 8,740 8,180 2,640 7,701 10,111
Interest 3,956 4,305 4,230 3,476 3,506 3,478 3,854 4,177 4,100
Exceptional items 938 387 - - 481 78 - - -
PBT 1,603 1,718 2,758 2,873 5,716 4,780 (1,214) 3,524 6,011
Tax 493 746 858 758 1,098 1,221 (243) 705 1,202
PAT 1,110 972 1,900 2,115 4,617 3,559 (972) 2,819 4,809
Minority Interest 553 203 212 135 760 538 (194) 564 962
Share of associates 43 17 (15) 442 353 326 342 360 378
EO items (net of tax) - - - - - - - - -
APAT 600 786 1,673 2,423 4,211 3,347 (435) 2,615 4,224
APAT Growth (%) (53.3) 31.0 112.8 44.8 73.8 (20.5) NA NA 61.6
EPS 2.4 5.1 10.9 15.8 27.5 21.9 (2.8) 17.1 27.6
EPS Growth (%) (72.4) 110.3 112.8 44.8 73.8 (20.5) NA NA NA
Source: Company, HSIE Research

Consolidated Balance Sheet

As at March (Rs mn) FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
SOURCES OF FUNDS
Share Capital 290 306 306 306 307 307 307 307 307
Reserves 16,447 18,380 20,053 28,213 34,435 36,777 35,716 37,704 41,302
Total Shareholder’s Funds 16,737 18,686 20,359 28,519 34,741 37,083 36,022 38,010 41,608
Minority Interest 6,212 4,511 4,723 4,661 12,233 12,788 12,594 13,157 14,119
Long Term Debt 33,834 34,004 39,004 34,509 39,810 41,075 45,075 49,075 50,075
Short Term Debt 189 2,432 2,432 5,612 5,659 4,656 4,656 4,656 4,656
Total Debt 34,023 36,436 41,436 40,121 45,469 45,731 49,731 53,731 54,731
Deferred Taxes (1,047) (1,108) (1,108) (1,394) (1,390) (612) (612) (612) (612)
Long Term Provisions & Others - - - - - - - - -
TOTAL SOURCES OF FUNDS 55,925 58,524 65,409 71,907 91,053 94,990 97,735 1,04,287 1,09,846
APPLICATION OF FUNDS
Net Block 41,303 43,530 44,077 52,939 61,489 60,795 62,092 61,740 62,654
CWIP 2,138 1,949 1,949 5,025 8,960 15,341 13,269 18,496 21,142
Goodwill - - - 3,711 3,711 3,711 3,711 3,711 3,711
Investments, LT Loans & Advances 1,997 1,860 2,360 8,290 7,450 5,897 5,897 7,897 9,897
Inventories 11,783 13,240 15,240 6,615 8,986 8,161 7,661 7,161 6,661
Debtors 2,192 3,201 3,701 1,292 1,955 2,017 2,117 2,217 2,317
Cash & Equivalents 920 1,956 5,788 406 1,920 1,407 3,434 3,252 6,296
ST Loans & Advances, Others 5,032 6,181 7,731 5,450 5,298 7,532 7,682 7,832 7,982
Total Current Assets 19,927 24,577 32,459 13,763 18,159 19,117 20,894 20,462 23,257
Creditors 1,050 1,217 1,339 1,099 1,479 1,626 1,789 1,968 2,165
Other Current Liabilities & Provns 8,390 12,175 14,098 10,722 7,237 8,245 6,340 6,052 8,648
Total Current Liabilities 9,441 13,392 15,436 11,821 8,716 9,871 8,129 8,020 10,813
Net Current Assets 10,487 11,185 17,023 1,942 9,444 9,246 12,765 12,443 12,443
Misc Expenses & Others - - - - - - - - -
TOTAL APPLICATION OF FUNDS 55,925 58,524 65,409 71,907 91,053 94,990 97,735 1,04,287 1,09,846
Source: Company, HSIE Research

Page | 36
Phoenix Mills : Initiating Coverage

Consolidated Cash Flow

Year ending March (Rs mn) FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Reported PAT 600 786 1,673 2,423 4,211 3,347 (435) 2,615 4,224
Non-operating & EO items 510 186 227 (308) 407 212 (537) 204 584
PAT from Operations 1,110 972 1,900 2,115 4,617 3,559 (972) 2,819 4,809
Interest expenses 3,956 4,305 4,230 3,476 3,506 3,478 3,854 4,177 4,100
Depreciation 1,681 1,773 1,953 1,983 2,042 2,076 2,586 2,661 2,781
Working Capital Change (1,419) 338 (2,006) 7,417 (5,749) (985) (1,492) 141 3,043
OPERATING CASH FLOW ( a ) 5,327 7,388 6,078 14,991 4,417 8,129 3,976 9,798 14,733
Capex (266) (4,000) (2,500) (15,013) (14,606) (7,801) (1,811) (7,536) (6,340)
Free cash flow (FCF) 5,061 3,388 3,578 (23) (10,189) 327 2,165 2,262 8,393
Investments (999) 137 (500) (440) 609 0 0 (2,000) (2,000)
INVESTING CASH FLOW ( b ) (1,265) (3,863) (3,000) (15,454) (13,997) (7,801) (1,811) (9,536) (8,340)
Share capital Issuance (120) 2,826 0 6,322 9,035 63 0 0 0
Debt Issuance (38) 2,413 5,000 410 5,301 878 4,000 4,000 1,000
Interest expenses (4,017) (4,305) (4,230) (3,516) (3,329) (3,256) (3,854) (4,177) (4,100)
Dividend (372) (509) (394) (442) (480) (555) (627) (627) (627)
FINANCING CASH FLOW ( c ) (4,546) 424 376 2,774 10,527 (2,869) (481) (804) (3,726)
NET CASH FLOW (a+b+c) (484) 3,949 3,454 2,311 947 (2,542) 1,685 (541) 2,666
Non-operating and EO items 1,156 0 394 (218) (800) (18) - - -
Closing Cash & Equivalents 920 4,562 5,788 308 396 1,407 3,434 3,252 6,296
Source: Company, HSIE Research

Key Ratios
FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
PROFITABILITY (%)
GPM 84.5 73.4 75.9 91.9 89.0 89.9 92.6 95.5 95.7
EBITDA Margin 47.6 44.3 46.4 48.0 50.1 49.8 43.3 51.2 55.6
APAT Margin 3.6 4.4 9.2 15.0 21.2 17.2 (4.1) 13.8 19.2
RoE 3.3 4.3 8.6 8.1 12.2 8.4 (2.1) 6.1 9.7
Core RoCE 17.3 21.5 20.5 10.0 11.9 9.5 2.9 8.2 10.3
RoCE 12.0 11.6 11.7 10.0 11.9 9.5 2.9 8.2 10.3
EFFICIENCY
Tax Rate (%) 30.8 43.4 31.1 26.4 19.2 25.5 20.0 20.0 20.0
Asset Turnover (x) 0.3 0.3 0.3 0.3 0.2 0.2 0.1 0.2 0.2
Inventory (days) 256 257 285 246 144 161 271 143 115
Debtors (days) 46 55 69 56 30 37 71 42 38
Payables (days) 29 23 26 27 24 29 59 36 34
Cash Conversion Cycle (days) 273 289 328 275 150 169 284 148 118
Debt/EBITDA (x) 4.3 4.6 4.9 5.2 4.6 4.7 10.8 5.5 4.5
Net D/E 2.0 1.8 1.8 1.4 1.3 1.2 1.3 1.3 1.2
Interest Coverage 1.6 1.5 1.7 1.8 2.5 2.4 0.7 1.8 2.5
PER SHARE DATA
EPS (Rs/sh) 2.4 5.1 10.9 15.8 27.5 21.9 -2.8 17.1 27.6
CEPS (Rs/sh) 15.7 16.7 23.7 28.8 40.9 35.4 14.1 34.5 45.8
DPS (Rs/sh) 2.2 2.3 3.2 2.8 3.7 3.7 3.7 3.7 3.7
BV (Rs/sh) 115.4 122.1 133.1 186.4 227.1 242.4 235.4 248.4 272.0
VALUATION
P/E 266.4 126.7 59.5 41.1 23.7 29.8 (229.1) 38.1 23.6
P/BV 5.6 5.3 4.9 3.5 2.9 2.7 2.8 2.6 2.4
EV/EBITDA 16.2 17.0 16.0 17.9 14.4 14.9 31.6 15.4 12.1
OCF/EV (%) 4.2 5.5 0.0 0.1 0.0 0.1 0.0 0.1 0.1
FCF/EV (%) 4.0 2.5 2.6 (0.0) (7.1) 0.2 1.5 1.5 5.7
FCFE/Market Cap (%) 1.1 1.5 4.4 (3.1) (8.3) (2.1) 2.3 2.1 5.3
Dividend Yield (%) 0.3 0.4 0.5 0.4 0.6 0.6 0.6 0.6 0.6
Source: Company, HSIE Research

Page | 37
Strategy Thematics

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Page | 38
Strategy Thematics

Rating Criteria
BUY: >+15% return potential
ADD: +5% to +15% return potential
REDUCE: -10% to +5% return potential
SELL: > 10% Downside return potential

Disclosure:
We, Parikshit Kandpal, CFA, Chintan Parikh, MBA & Rohan Rustagi, MBA, authors and the names subscribed to this report, hereby certify that all of the views
expressed in this research report accurately reflect our views about the subject issuer(s) or securities. HSL has no material adverse disciplinary history as on the date of
publication of this report. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in
this report.
Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC
Securities Ltd. or its Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication
of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest.
Any holding in stock –No
HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475.

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This report has been prepared by HDFC Securities Ltd and is solely for information of the recipient only. The report must not be used as a singular basis of any investment
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investigations as they deem necessary to arrive at an independent evaluation of an investment in securities of the companies referred to in this document (including merits
and risks) and should consult their own advisors to determine merits and risks of such investment. The information and opinions contained herein have been compiled or
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representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without
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changes. HSL has the right to make changes and modifications at any time.
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HSL or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for
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HSL or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from t date of this
report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other
advisory service in a merger or specific transaction in the normal course of business.
HSL or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the
research report. Accordingly, neither HSL nor Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our
Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. HSL may have issued other reports that are
inconsistent with and reach different conclusion from the information presented in this report.
Research entity has not been engaged in market making activity for the subject company. Research analyst has not served as an officer, director or employee of the subject
company. We have not received any compensation/benefits from the subject company or third party in connection with the Research Report.
HDFC securities Limited, I Think Techno Campus, Building - B, "Alpha", Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg (East),
Mumbai 400 042 Phone: (022) 3075 3400 Fax: (022) 2496 5066 Compliance Officer: Binkle R. Oza Email: complianceofficer@hdfcsec.com Phone: (022) 3045 3600
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Institutional Equities
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