stock to buy: Stock pick of the week: Phoenix Mills is beating the odds, despite weakness in consumption space

Phoenix Mills is one of India’s largest mall owners and operators and therefore, is a good proxy for the expected domestic consumption growth story, which is boosted by the burgeoning urban middle class. Analysts are getting attracted to this counter now because Phoenix was able to report decent numbers for the second quarter of 2019-20 despite the overall weakness in the consumption space. A 66% y-o-y jump in revenue from commercial portfolio helped Phoenix to achieve this.

With the completion of its mall construction getting nearer, Phoenix is expected to report better numbers in the coming quarters. As of now, Phoenix is constructing five retail properties in different cities including Lucknow, Pune, Bengaluru and Ahmedabad. The Lucknow mall has already reached the fit-out level and the same is being handed over to the tenants for interior work. This mall is expected to be fully operational by February 2020. Around 75% of the space in Lucknow has already been leased out and since the demand is high, the remaining portion is also expected to be leased out soon.

Construction progress of the remaining four retail assets are also satisfactory. These are expected to be fully operational between 2020-21 and 2022-23 in a phased manner. Phoenix also has exposure to office space and hotel space. It has around 2 million sqft office space ready and the another 1 million sqft office space is in progress. Phoenix has already spent Rs 230 crore in the first half and is expected to spend around Rs 600 crore in the second half of 2019-20. If one considers its development plans, the total capex in the coming financial years will be to the tune of Rs 2,000 crore. Since the net debt equity is now placed at a comfortable 1.08 times, these new capex plans will be funded using debt and equity.

Reasonable valuation, ie compared to other real estate players, is another factor that is attracting analysts to this counter. While retail and office rentals are showing stable growth now, the hotel space is facing some hiccups. That means, Phoenix will continue to report stable growth in coming years and the expected spurt in growth will come from the cyclical upturn in the hotels sector.

Analysts’ views

Buy: 16

Selection Methodology

We pick up the stock that has shown maximum increase in “consensus analyst rating” during the last one month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (ie 5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search will be restricted to stocks with at least 10 analysts covering it.