ICICI Securities Upgrade Rating On This Multibagger Real Estate Stock To BUY, Claims Robust Returns

Stock Outlook & Returns on investment

The stock on BSE last traded at 1,402.95/share, 0.35% up from its previous close. The stock's 52 week high level is Rs 1,620 and the 52 week low level is Rs 884.30, respectively. In the past 1 month it has given 5.725 negative returns. Over the past 1 year, it gave 37.45% positive returns. In the past 3 years, the stock gave 82.85% positive returns. In 5 years it gave 142.05% multibagger returns.

Surat land acquisition transaction contours

PHNX has announced the completion of acquisition of a 7.2acre land parcel in Surat, Gujarat in Western India for a total consideration of Rs5.1bn. The land is located on Udhana Magdalla Road in Surat and is estimated to have gross leasable area of 1.0msf and the company expects to complete development by FY27. The Surat land has been bought in partnership with Ahmedabad based Bsafal Group (same partner with company in soon to commence Ahmedabad mall) where in Bsafal will have 20% equity ownership while the balance 80% equity will be held by the PHNX-GIC JV platform where PHNX holds 67.1% which effectively means ~54% equity share for PHNX in the Surat mall. As per company, the total capital commitment may be ~Rs12.5bn (including land cost of Rs5.1bn) to be funded 50:50 through equity and debt. Initlal land payment of Rs5.1bn has been funded in 80:20 ratio by PHNX-GIC and Bsafal.

Surat mall to drive long term growth

While the Environmental Clearance is awaited, we have assumed commencement of construction in FY24 and completion in H2FY27 with initial rentals to be ~Rs140/psf/month (inflation adjusted for current estimated rentals of Rs120/psf/month. We expect the Surat mall to contribute Rs1.6bn annual gross rental income from FY28 onwards at over 90% occupancy which implies a 13.2% gross rental yield on invested capital of Rs12.5bn in first full year of stabilised mall operations.

Estimated rental income CAGR of 17% over FY20-25E

PHNX will have ~14msf operational mall space by FY27 (6.9msf currently operational). We expect PHNX to achieve a 17% rental income CAGR (ex-new Kolkata asset) over FY20-25E, resulting in Rs22.4bn of rental income in FY25E vs. ~Rs10.3bn in FY20. Of the Rs22.4bn of gross rental income in FY25E, PHNX's share is ~77% or Rs17.3bn.

Buy for a target price of Rs 1,648/share

The Phoenix Mills (PHNX) has announced the completion of the Surat mall land acquisition for Rs5.1bn in partnership with Ahmedabad based Bsafal Group. PHNX's JV with GIC (67.1% PHNX stake) will hold 80% stake in this asset with balance 20% held by Bsafal with PHNX effectively having 54% stake in this asset. As per company, the 1.0msf mall may have total capex of Rs12.5bn (including land) to be funded 50:50 through equity and debt with a targeted mall opening in FY27. We assume Surat mall opening in H2FY27 with FY28 stabilised annual rental income of Rs1.6bn at over 90% occupancy and rentals of ~Rs140/psf/month which implies 13.2% gross rental yield on invested capital. "We upgrade our rating to BUY from ADD with a revised target price of Rs1,648/share (earlier Rs1,638) factoring in the new Surat mall and retain our 20% premium to Mar'23E NAV of Rs1,374/share considering opportunities from office capex and new malls. Key risks are fresh Covid waves impacting consumption and fall in mall occupancies and rentals," the brokerage has said.

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.