Motilal Oswal maintains Buy on Phoenix Mills as mall additions brighten rental prospects

Motilal Oswal has maintained its Buy call on Phoenix Mills with a target price of Rs 757, implying 19 percent potential upside as mall additions brightened the rental prospects of the company.

It believes that Phoenix is a unique way to play India’s retail growth story.

The stock looks attractive due to its (a) strong operational performance, (b) scalability (through the CPPIB deal) and c) robust cash generation, said the research house that values company's retail assets on DCF-based NAV approach, assuming a cap rate of 8 percent and a discount rate of 13 percent.

Moreover, the commencement of operations at the brownfield expansion mall by FY21 (Lucknow and Indore) provides near-term rental income visibility, it added.

Phoenix Mills acquired an under-construction mall in Indore for a consideration of Rs 230 crore.

"This was its third mall acquisition (Pune, Bangalore and now Indore) under the Canada Pension Plan Investment Board (CPPIB) platform – these malls are likely to commence operations over FY21-23, driving rental growth," the research house said.

The company has also acquired a 0.9 million square feet under-construction mall in Lucknow for Rs 450 crore – 90 percent of RCC work is complete and operations are likely to commence by FY21, it added.

Motilal Oswal said to enhance customer experience, Phoenix intends to allocate more space for food & beverages (by resizing tenants or adding new mall space), driving consumption, and thus, rentals.