CMP 208.00

Target Price 235.00

ISIN: INE211B01039

SEPTEMBER 25th

2013

THE PHOENIX MILLS LIMITED

Result Update: Q1 FY14

BUYBUYBUYBUY

Index Details

Stock Data

Sector Real Estate

BSE Code 503100

Face Value 2.00

52wk. High / Low (Rs.) 293.00/181.30

Volume (2wk. Avg. Q.) 12542

Market Cap (Rs. in mn.) 30127.76

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

YEARS FY13A FY14E FY15E

Net Sales 2706.01 3301.33 3928.59

EBITDA 2350.76 2875.17 3403.31

Net Profit 1338.79 1650.91 1955.41

EPS 9.24 11.40 13.50

P/E 22.50 18.25 15.41

Shareholding Pattern (%)

1 Year Comparative Graph

The Phoenix Mills LTD BSE SENSEX

SYNOPSIS

• The Phoenix Mills Ltd. began operations as a

textile manufacturing in 1905 and later entered

in growing real estate market in 1987 at Mumbai

with High Street Phoenix emerging as the most

frequented destination in the city.

• The company’s net Profit registered 36.72%

increase and stood at a record Rs. 418.30 million

from Rs. 305.96 million over the corresponding

quarter last year.

• Kenneth Cole, Patchi, Heel & Buckle, Gant and

Citibank are some of the stores which opened in

Q1FY14 by the Company.

• The company has Interests in 11 irreplaceable

large scale retail assets – Making up close to 7.0

mn sq. ft. across 9 Indian city-centers.

• High Street Phoenix Consumption at the mall

increased to Rs 3,023 Mn in Q1FY14, a 17% y-o-y

growth and Average Trading Density increased to

Rs 2,076 psf. pm. in Q1FY14, a 18% y-o-y growth.

• Net Sales and PAT of the company are expected to

grow at a CAGR of 26% and 23% over 2012 to

2015E respectively.

PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

The Phoenix Mills Ltd. 208.00 30127.76 9.24 22.50 1.67 110.00

DLF Ltd. 140.50 250204.60 1.60 87.81 1.65 100.00

Sobha Developers Ltd. 283.00 27752.10 20.74 13.65 1.31 70.00

Mahindra Lifespace Developers Ltd. 404.50 16519.60 20.55 19.68 1.39 60.00

QUARTERLY HIGHLIGHTS (STANDALONE)

Results updates- Q1 FY14,

The Phoenix Mills Ltd. began operations as a textile

manufacturing in 1905 & later entered the growing

real estate market in 1987 at Mumbai with High

Street Phoenix emerging as the most frequented

destination in the city, a business model with

annuity income from retail, healthy cash flows from

sale of commercial & residential assets & value

generation through strategic investments.

The company has achieved a turnover of Rs. 698.24 million for the 1st quarter of the current year 2013-14 as

against Rs. 626.00 millions in the corresponding quarter of the previous year. The company has reported an

EBITDA of Rs. 690.23 millions and a net profit of Rs. 418.30 million against Rs. 305.96 million reported

respectively in the corresponding quarter of the previous year. The company has reported an EPS of Rs. 2.89 for

the 1st quarter as against an EPS of Rs. 2.11 in the corresponding quarter of the previous year.

Break up of Expenditure

During the quarter other expenses rose by 16 per cent and decline in Electricity Expenses, Employee Benefits

Expenses along with consideration of depreciation when compared with corresponding period of the previous

year. Total expenditure in Q1 FY14 stood to Rs. 288.55 million as against Rs. 298.92 million in Q1 FY13.

Other Expenses incurred Rs. 127.84 against Rs.

110.25 millions in the corresponding period of the

previous year. Employees’ benefits expenses faced

at Rs. 20.30 against Rs. 21.35 million, Electricity

Expenses are at Rs. 75.25 mn in Q1 FY14 against Rs.

100.08 mn in Q1 FY13 whereas Depreciation &

Amortization is at Rs.65.16 million in Q1 FY14 are

the primarily attributable to decrease of

expenditure.

Months JUNE-13 JUNE-12 % Change

Net Sales 698.24 626.00 11.54%

PAT 418.30 305.96 36.72%

EPS 2.89 2.11 36.72%

EBITDA 690.23 537.55 28.40%

Latest Updates

� High Street Phoenix

• HSP rental increased to Rs 206 psf. p.m. in Q1 FY14, a 17% y-o-y growth and Top stores continue to generate

rentals between Rs 600 to 1,200psf pm on Revenue share. Kenneth Cole, Patchi, Heel & Buckle, Gant and

Citibank are some of the stores which opened in Q1FY14.

• Consumption at the mall increased to Rs 3,023 Mn in Q1FY14, a 17% y-o-y growth. Average Trading Density

increased to Rs 2,076 psf. pm. in Q1FY14, a 18% y-o-y growth.

• Approx 120,000 sqft of area coming up for renewal in the next 12 months and Renewals continue to be in the

range of Rs 350 to Rs 400 psf pm of MG.

� Shangri – commenced operations on December19th La, 2012

• The hotel features 390 spacious and elegantly appointed rooms, including 32 suites, with stunning views of

the city, race course and the Arabian Sea

• 221 rooms were operational as of 30th June, 2013. The room count is expected to increase to 300 in August

and thereafter the rooms will increase in a phased manner to 390 depending on demand.

• Currently only 3 restaurants are operational. Another 3 restaurants will open in August. The remaining

restaurants will be opened by September.

TIER 2 AND TIER 3 DEVELOPMENTS

Big Apple Real Estate Pvt Ltd

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

United’

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

2012 respectively.

Entertainment World Developers Pvt Ltd

• Investment of Rs. 1,590 mn for 40.3% stake and develops retail, hospitality and residential projects across

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

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

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

COMPANY PROFILE

The Phoenix Mills Ltd. began operations as a textile manufacturing in 1905 and gradually the company entered in

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

destination in the city.

Phoenix Mills Ltd is poised to carve a niche in the booming Indian real estate sector. The Phoenix Group is set to

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

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

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

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

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

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

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

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

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

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

rollout plans.

Core Business

� Retail: Build and Lease

The company has a strategic alliance with the “Pantaloons Group” India’s fore-runner in the retail segment

through their brands “Pantaloon” and “Big Bazaar”, and a significant stake in Galaxy Entertainment Corp. Ltd,

a publicly listed company that specializes in setting up Leisure & Entertainment Centers, as well as food

courts/kiosks across the country.

High Street Phoenix

Phoenix Market City - Mumbai

Phoenix Market City - Pune

Phoenix Market City – Bangalore

Phoenix Market City - Chennai

Malls

� Hospitality: Build and Operate

India's rich culture and heritage, ancient history and monuments, unity in diversity, colorful people &

festivals are some of the reasons that India is one of the most attractive tourist destinations in the world.

In an attempt to bridge this demand-supply gap, the Market Cities retail destinations are ideal locations for

hotels, catering to business travelers as well as tourists. The company is handling its projects in Mumbai,

Pune, Chennai, Bangalore & Agra in the segment.

� Entertainment

The Indian entertainment industry is estimated to grow at a booming 18 per cent per annum, computed with

a target of 45,000 crores. The Phoenix Mills Limited group joined hands with Galaxy Entertainment in 1998

and together they have set a new benchmark for leisure and entertainment in Mumbai. The 20 alley Bowling

Co. was the first of its kind in Mumbai and still remains one of the largest and most popular destinations in

the city. Today, multiplexes, gaming arcades, food courts and shopping centers have made malls a destination

for myriad consumers, with varying needs and interests.

� Residential & Commercial: Build and Sell

The Phoenix Mills Limited, in all projects, pays special attention to the consumer's/ retailer's needs. The

commercial office blocks have been incorporated into the market city projects. Commercial office blocks of

approximately 3000 sq ft are an integral part of all the projects, from High Street Phoenix to all the Market

city projects. These projects are in prime locations, with easy connectivity to important city centers, airports

& railway stations, making the development an ideal location for office space. The office blocks have latest

facilities & amenities including parking, internet & other telecommunication connections, electricity,

illumination, etc.

Group Companies

• EWDPL

EWDPL is a Tier II city centric retail mall, mixed use developer, currently engaged in the construction and

operation of mixed-use retail centers and townships.

• Big Apple

Big Apple Real Estate Pvt. Ltd was formed as a holding for development of Malls, Multiplex's and other real

estate ventures, in India. The Company has formed to develop malls by brand name Phoenix United across

north India, particularly in UP covering cities including Lucknow, Agra, Bareilly & Varanasi.

GEOGRAPHICAL - SPREAD

Strong presence in metropolitan and Tier I cities like Mumbai, Pune, Bengaluru & Chennai. Spreading to Tier II,

Tier III cities by partnering with experienced and reputed developers

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

Balance Sheet as at 31st March, 2012-15E FY-12A FY-13A FY-14E FY-15E

I SOURCES OF FUNDS

A) Shareholder's Funds

Share Capital 289.69 289.69 289.69 289.69

Reserves and Surplus 16431.18 17768.99 19419.90 21375.32

Total Net worth 16720.87 18058.68 19709.59 21665.01

B) Non Current Liabilities

long term borrowing 2611.50 2067.00 1839.63 1747.65

Other Long term liabilities 663.70 770.85 840.23 890.64

Long term Provisions 3.88 3.64 3.79 3.97

Total Non Current liabilities 3279.08 2841.49 2683.64 2642.26

C) Current Liabilities

Short term borrowings 6.57 120.64 150.80 174.93

Trade payables 410.39 440.61 458.23 471.98

Other Current liabilities 991.41 1124.75 1214.73 1287.61

Short term Provisions 360.07 92.73 69.55 75.81

Total Current Liabilities 1768.44 1778.73 1893.31 2010.33

Total Liabilities (A+B+C) 21768.39 22678.90 24286.55 26317.60

II APPLICATION OF FUNDS

A) Non-Current Assets

Tangible assets 4394.58 4424.55 4557.29 4648.43

Capital Work in Progress 913.17 1089.75 1220.52 1318.16

Non Current Investments 7997.64 9386.25 10324.88 10954.69

Long Term loans and advances 5478.15 3888.11 3298.52 3529.42

Deferred Tax Asset 28.32 30.21 31.75 33.02

Other non-current assets 83.94 5.08 5.89 6.60

Total Non-Current Assets 18895.80 18823.95 19438.85 20490.33

Current Assets

B) Current Investment 100.00 0.00 0.00 0.00

Inventories 0.00 0.00 0.00 0.00

Trade receivables 313.57 294.17 305.94 321.23

Cash and Bank Balances 137.71 223.23 294.66 349.56

Short-terms loans & advances 2176.34 3188.80 4090.91 4990.91

Other current assets 144.97 148.75 156.19 165.56

Total Current Assets 2872.59 3854.95 4847.70 5827.27

Total Assets (A+B) 21768.39 22678.90 24286.55 26317.60

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

Value(Rs.in.mn) FY12 FY13 FY14E FY15E

Description 12m 12m 12m 12m

Net Sales 1980.75 2706.01 3301.33 3928.59

Other Income 457.02 565.28 650.07 747.58

Total Income 2437.77 3271.29 3951.40 4676.17

Expenditure -580.14 -920.53 -1076.23 -1272.86

Operating Profit 1857.63 2350.76 2875.17 3403.31

Interest -165.45 -264.96 -357.70 -465.00

Gross profit 1692.18 2085.80 2517.47 2938.30

Depreciation -282.94 -275.40 -291.92 -306.52

Profit Before Tax 1409.24 1810.40 2225.55 2631.78

Tax -355.82 -471.61 -574.64 -676.37

Net Profit 1053.42 1338.79 1650.91 1955.41

Equity capital 289.69 289.69 289.69 289.69

Reserves 16431.20 17768.99 19419.90 21375.32

Face value 2.00 2.00 2.00 2.00

EPS 7.27 9.24 11.40 13.50

Quarterly Profit & Loss Statement for the period of 31 DEC, 2012 to 30 SEP, 2013E

Value(Rs.in.mn) 31-Dec-12 31-Mar-13 30-June-13 30-Sep-13E

Description 3m 3m 3m 3m

Net sales 693.39 722.12 698.24 740.13

Other income 125.87 140.46 215.38 236.92

Total Income 819.26 862.58 913.62 977.05

Expenditure -219.50 -243.16 -223.39 -240.54

Operating profit 599.76 619.42 690.23 736.51

Interest -69.89 -65.76 -71.70 -75.29

Gross profit 529.87 553.66 618.53 661.22

Depreciation -68.74 -70.68 -65.16 -67.11

Profit Before Tax 461.13 482.98 553.37 594.11

Tax -119.72 -121.83 -135.07 -150.31

Net Profit 341.41 361.15 418.30 443.80

Equity capital 289.69 289.69 289.69 289.69

Face value 2.00 2.00 2.00 2.00

EPS 2.36 2.49 2.89 3.06

Ratio Analysis

Particulars FY12 FY13 FY14E FY15E

EPS (Rs.) 7.27 9.24 11.40 13.50

EBITDA Margin (%) 93.78 86.87 87.09 86.63

PBT Margin (%) 71.15 66.90 67.41 66.99

PAT Margin (%) 53.18 49.47 50.01 49.77

P/E Ratio (x) 28.60 22.50 18.25 15.41

ROE (%) 6.30 7.41 8.38 9.03

ROCE (%) 11.07 12.97 14.39 15.41

Debt Equity Ratio 0.16 0.12 0.12 0.11

EV/EBITDA (x) 17.55 13.65 11.18 9.46

Book Value (Rs.) 115.44 124.68 136.07 149.57

P/BV 1.80 1.67 1.53 1.39

Charts

OUTLOOK AND CONCLUSION

� At the current market price of Rs. 208.00, the stock P/E ratio is at 18.25 x FY14E and 15.41 x FY15E

respectively.

� Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs.11.40 and

Rs.13.50 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 26% and 23% over 2012 to 2015E

respectively.

� On the basis of EV/EBITDA, the stock trades at 11.18 x for FY14E and 9.46 x for FY15E.

� Price to Book Value of the stock is expected to be at 1.53 x and 1.39 x respectively for FY14E and FY15E.

� We expect that the company surplus scenario is likely to continue for the next three years, will keep its

growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of

Rs.235.00 for Medium to Long term investment.

INDUSTRY OVERVIEW

The Indian real estate and construction industry is an integral part of Indian economy and plays an important

role in the development of the country’s infrastructure base. The contribution of the real estate sector to India’s

gross domestic product (GDP) has been estimated at 6.3 per cent in 2013, and the segment is expected to

generate 7.6 million jobs during the same period. It is also expected to generate over 17 million employment

opportunities across the country by 2025.

The sector comprises of four sub-sectors- housing, retail, hospitality, and commercial. While housing contributes

to five-six percent of the country’s GDP, the remaining three sub-sectors are also growing at a rapid pace,

meeting the increasing infrastructural needs.

Riding high on the back of rapid urbanisation, positive demographics and rising income levels, the Indian real

estate sector has attracted significant investment over the past few years. The growing stability of the market is

reflected by the continuous growth of the core investors, with over Rs 77050.00 millions (US$ 1.14 billion)

invested in ready office space during the last three years.

Market Dynamics

The real estate sector of India is expected to post annual revenues of US$ 180 billion by 2020 as compared to US$

66.8 billion in 2010-11, registering a compound annual growth rate (CAGR) of 11.6 per cent. In fact, the demand

is expected to grow at a CAGR of 19 per cent between 2010 and 2014, with tier I metropolitan cities projected to

account for about 40 per cent of this.

Mumbai, NCR and Bengaluru account for 46 per cent of total office space demand in India. Demand growth

projected to be the highest in Tier 2 cities such as Kolkata and Chennai during 2010-14.

Investments

• The prime office space segment across the country’s key cities- Mumbai, the National Capital Region

(NCR), Pune and Bengaluru has witnessed a fresh supply infusion of more than 20 million square feet (sq

ft) in the first six months of 2013, witnessing a growth of 16 per cent on year-on-year (y-o-y) basis, as per

a report by CBRE.

• The country is ranked 20th among the top global markets for real estate investment in 2012, with

investments worth US$ 3.4 billion during the year, according to a latest report by Cushman & Wakefield.

It is also estimated that foreign direct investment (FDI) into real estate in India will increase to US$ 25

billion over the next 10 years.

• Construction development sector (including townships, housing, built-up infrastructure & construction-

development projects) has attracted a cumulative FDI worth US$ 22,247.50 million from April 2000 to

June 2013. FDI flows into the construction (infrastructure) activities during the period stood at US$

2,198.77 million, according to the department of industrial policy and promotion (DIPP).

Some of the major investments in the Indian real estate sector are:

� Peninsula Land has signed an agreement to buy a five-acre property in the Byculla area of Mumbai from

its joint owners, Mahindra Lifespaces, the realty arm of Mahindra Group, and the Kanorias, for around Rs

650 crore (US$ 96.45 million)

� Godrej Properties Ltd (GPL) has entered into an agreement to develop 37 acres in Panvel, Maharashtra.

The company will receive 35 per cent of the profits from the development

� Cushman & Wakefield has entered into an agreement to acquire Singapore-based project management

specialist company Project Solution Group (PSG). The acquisition is aligned with the firm's global

strategy to strengthen its operations in the Asia-Pacific

� Reliance Industries is expanding its presence in Africa's real estate sector. The firm acquired 10 prime

plots of land in Nairobi, Kenya, for around Rs. 202 crore (US$ 29.97 million)

� Germany-based SEA Group, engaged in the living space solutions segment, plans to invest Rs. 40 crore

(US$ 5.94 million) over the next two years in its Indian operations.

Government Initiatives

• In an attempt to encourage investors’ participation in the Indian housing sector, the Ministry of Housing

and Urban Poverty Alleviation plans to ease the norms for FDI in real estate projects. FDI upto 100 per

cent is allowed under the automatic route in townships, housing, built-up infrastructure and construction

development projects to increase investment, generate economic activity, create new employment

opportunities and add to the available housing stock and built-up infrastructure.

• The Reserve Bank of India (RBI) has relaxed norms to raise funds via external commercial borrowings

(ECB) for low-cost affordable housing projects. Now, developers and builders with three years of

experience in undertaking residential projects are eligible to raise funds through the ECB route. RBI has

also relaxed the minimum paid-up capital norm for housing finance companies (HFCs) to raise funds

through ECBs.

• The Government of India has sanctioned projects worth Rs 41,723 crore (US$ 6.19 billion) for building of

1,569,000 houses/dwelling units for economically weaker/lower income group sections under the

Ministry’s flagship Jawaharlal Nehru National Urban Renewal Mission (JNNURM) programmes.

• The Ministry of Housing & Urban Poverty Alleviation has planned to introduce a single-window system

for clearance of all real estate projects across the country. The system could bring down the average

approval time from the current 196 days to 45-60 days.

• The government has also introduced the Real Estate Regulation Bill 2013 in the Parliament to set up a

strong regulatory architecture to protect the interest of consumers and for the regulation & promotion of

the real estate sector.

Some of the initiatives taken in the union budget 2013-14 include:

For homes and flats with a carpet area of 2,000 square feet or more or of a value of Rs 1 crore (US$ 148389.97)

or more, which are high-end constructions, where the component of services is greater, rate of abatement

reduced from 75 to 70 percent

Rs 6,000 crore (US$ 890.34 million) were given to Rural Housing Fund

National Housing Bank plans to set up Urban Housing Fund. Rs 2,000 crore (US$ 296.78 million) will be provided

to the fund in the current financial year

Road Ahead

Given the current level of development and friendly government policies, India’s realty sector still has a long way

to go. Responding to an increasingly well-informed consumer and keeping in mind the globalisation of the Indian

business outlook, real estate developers have also shifted gears and accepted fresh challenges. The most marked

change has been the shift from family owned businesses to professionally managed ones.

A growing migrant population due to increasing job opportunities, together with healthy infrastructure

development, is underpinning demand in the region’s residential real estate market. Residential real estate in

India accounts for a huge 90-95 per cent of the real estate industry. According to estimates by Crisil, the demand-

supply gap in India’s housing sector will stand at 75.5 million units by the end of 2014. Demand is expected to be

boosted further due to India’s demographic dividend and the growing trend of nuclear families.

Disclaimer:

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

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

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

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

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

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

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

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

C.V.S.L.Kameswari Pharma

U. Janaki Rao Capital Goods

Ashish.Kushwaha IT, Consumer Durable & Banking

B. Anil Kumar Diversified

Suhani Adilabadkar Diversified

M. Vinayak Rao Diversified

Firstcall India also provides

Firstcall India Equity Advisors Pvt.Ltd focuses on, IPO’s, QIP’s, F.P.O’s,Takeover

Offers, Offer for Sale and Buy Back Offerings.

Corporate Finance Offerings include Foreign Currency Loan Syndications,

Placement of Equity / Debt with multilateral organizations, Short Term Funds

Management Debt & Equity, Working Capital Limits, Equity & Debt

Syndications and Structured Deals.

Corporate Advisory Offerings include Mergers & Acquisitions(domestic and

cross-border), divestitures, spin-offs, valuation of business, corporate

restructuring-Capital and Debt, Turnkey Corporate Revival – Planning &

Execution, Project Financing, Venture capital, Private Equity and Financial

Joint Ventures

Firstcall India also provides Financial Advisory services with respect to raising

of capital through FCCBs, GDRs, ADRs and listing of the same on International

Stock Exchanges namely AIMs, Luxembourg, Singapore Stock Exchanges and

other international stock exchanges.

For Further Details Contact:

3rd Floor,Sankalp,The Bureau,Dr.R.C.Marg,Chembur,Mumbai 400 071

Tel. : 022-2527 2510/2527 6077/25276089 Telefax : 022-25276089

E-mail: info@firstcallindiaequity.com

www.firstcallindiaequity.com