Phoenix Mills scrip outlier in realty pack

Phoenix Mills, the country’s largest mall owner, bucked the trend of falling real estate stocks after demonetisation, with its share price rising 8 per cent since November 8.

The BSE Realty Index has declined 15 per cent post demonetisation even as the Sensex fell 5 per cent. The share price of DLF, one of the country’s largest real estate developers, has declined 24 per cent since November 8. Share prices of other real estate companies such as HDIL and Prestige Estate have fallen nearly 19 per cent. The Mumbai-based Phoenix Mills is the biggest owner and operator of malls in India. The company’s 6-million sq ft mall in Lower Parel in Mumbai is among the top three revenue-earning malls in the country.

“Phoenix Mills is insulated because it is a rent-based company with marquee properties,” said Adidev Chattopadyay, analyst with Elara Securities, in a recent report. “The stock offers an attractive entry point at the current valuation,” he added.

AK Prabhakar, head of research at IDBI Capital, agreed. “A majority of commercial property developers deal through banks, so demonetisation will not affect them. After demonetisation, consumption has shifted to organised retail and this will benefit companies such as Phoenix Mills,” he said.

Mall operators have been affected by the government's move because sales at retail chains have dropped. This affects operators who earn fixed rents and share revenue with tenants. “Sales at malls are now at 80-85 per cent of the normal,” said Atul Ruia, joint managing director, Phoenix Mills. “By January, we believe these will reach 100 per cent,” he added.

While mall operations are the dominant businessof Phoenix Mills, it’s also in the residential market. It reported a consolidated revenue of ~490 crore in the September quarter, exceeding analysts’ expectations, as revenue from its Kessaku luxury residential project in Bengaluru started being recognised. According to Elara Capital, Phoenix Mills’ earnings before interest, tax, depreciation and amortisation of ~230 crore and adjusted profit after tax of ~50 crore were 8 per cent higher than estimates because of higher margins from the Bengaluru project.

Phoenix Mills is in talks with investors to sell stakes in its mall projects in Bengaluru and Pune for about $300 million. The company will plough back the proceeds to build and acquire new malls.