Managing Director Atul Ruia claims they are a misunderstood company
Atul Ruia compares his property development firm, The Phoenix Mills, to a mining company. “You dig for three years and then you get ore. We have also invested capital for three years and are ready for the cash flows to start,” the 40 year-old managing director explains.
Investors seem to have started believing in what Ruia says. Phoenix is the leading performer among real estate scrips in this financial year. Shares of Phoenix rose 17 per cent from Rs 187.25 on April 1 to Rs 218.25 on June 30 on the Bombay Stock Exchange. It also beat the country’s three largest realty companies by market value — DLF, Unitech and HDIL — which shed up to 14 per cent during the same period.
“Most of its projects are nearing completion and over 50 per cent of them have been leased out. Investors can clearly see the revenues in the coming quarters. Most of their projects are in city centres, which add to the valuations,”’ says a stock analyst at a Mumbai-based brokerage. Religare Capital Markets recently placed a ‘buy’ on the stock, with a target of Rs 250.
Ruia, who operates from the congested Shakti Mills in the Mahalaxmi area of South Mumbai, is clearly in a hurry to catch up with the biggies. Under a project called Market City, he is constructing six malls of one million square feet each in cities like Mumbai, Pune and Bangalore, and a five-star (Shangri-La) on top of the company’s luxury mall Palladium, at Lower Parel in Mumbai. It will also build a Marriott Hotel in Mumbai’s Kurla and another five-star hotel in Pune by 2012-13. A hotel in Bangalore has been put on hold due to slowdown in markets. Besides this, Market City will also house office complexes and residential apartments.
For a textile company-turned-property developer, the line-up is huge, considering that since 1998, the company had been running only High Street Phoenix (HSP), a 3.3 million sq ft shopping destination at Lower Parel area. Phoenix Mills also owns Big Apple Real Estate which develops malls in central India.
Indore-based Entertainment World Developers, where Phoenix Mills has a 40 per cent stake, plans to come up with a public issue within a month. The company is run by Ruia’s cousin Manish Kalani.
However, analysts say High Street Phoenix alone contributes Rs 130 to the Phoenix’s stock price of Rs 218.25 and the company gained mainly due to historic land costs and lack of competition in the area.
But Ruia doesn’t agree. “Analysts are correct if they are valuing High Street at Rs 130, but they are pricing everything else too low,” he says, adding: “We are a misunderstood company”.
He reasoned that all his projects had achieved financial closure and the company had very low leverage of around Rs 150 crore. In 2008, German Fund MPC Synergy invested Rs 1,300 crore in the Phoenix Mills projects, making it one of the largest investments in real estate space. Other investors include IL&FS, Everstone and HBS Realtors.
Even during the slowdown in the sector, we continued to build and when retailers resumed expansion, we can quickly deliver them. We also have the first mover advantage in many cities now,”’ says Shishir Shrivastava , executive director of The Phoenix Mills.
But property consultants wonder whether it is the right time to launch malls given the oversupply hang in the market. According to property consultant Knight Frank, cities such as Pune, Hyderabad and the four metros are expected to see an oversupply of around 21 million sq ft of retail properties by 2012.
“They can definitely gain by postponing the launch by a year or so, as the market has a lot of new supply coming up,” says Rituraj Verma, national director, retail agency at Knight Frank.
Another property consultant says, “It will be difficult to replicate the success of High Street in places such as Kurla.”
But Ruia feels no need for deferring the launches, given that half of the space in the new projects have already been leased out.
He has quite a few backers too. Shahzad Dalal, vice-chairman of IL&FS Investments Managers, for example, says: “Whether the projects make returns or not, we are happy with their governance and project execution.