Q1FY24 Review: Phoenix Mills: Q1 Consumption growth soft; outlook robust

10 Aug 2023 , 11:52 AM

Phoenix Mills (PHNX) reported soft consumption growth for Q1FY24 and July 2023, although mgmt expects steady improvement from hereon, driven by increasing trading occupancy and start of new malls. Hospitality business continues to benefit from strong cyclical uptick, while occupancy for Commercial portfolio is gradually but steadily improving. PHNX’s expansion projects across Retail and Office are on track, with a strong 30% Ebitda Cagr expected over FY23-25. Business development outlook is robust, deal closures are expected in Q2. Analysts of IIFL Capital Services upgrade their FY24/25 earnings by 5-10% on higher margins, retain ADD. 

Consumption growth likely to improve from hereon: 

PHNX reported Q1FY24 consumption growth of 9% YoY (like-to-like basis), and 10% YoY adjusted for closures. Management shared that the categories performing well in Q1 were Jewellery +31%, F&B +24%, premium Grocery and Hypermarket at +88%; FEC and Electronics reported a growth of 3% and 2% YoY respectively. July consumption numbers came in at ~6% YoY, muted across PMC Mumbai, Pune, Chennai and Bangalore malls; while Palassio reported 17% YoY. Footfalls are back to the pre-Covid levels. 

Expansion projects on track: 

Over the last 6 months, PHNX has started malls at Ahmedabad and Indore, which have reported trading occupancy levels of 68% and 87% respectively in July 2023. Further, PHNX is expected to start its Bangalore and Pune malls in Q2, which have already received OC and have been given to tenants for fit-outs. On the Commercial portfolio, leasing for Bangalore office Phase 1 (0.8msf) is expected to start soon. On the Residential vertical, PHNX will look to do only opportunistic deals from hereon, largely in established and matured markets. 

Retaining estimates and ADD rating: 

On a like-to-like basis, mgmt expects consumption growth of 10-12% YoY and rental growth upwards of 6-7% YoY (with the possibility of an upside coming in from revenue share). Despite being muted for the first 4 months, PHNX expects consumption growth to improve steadily and maintained its 12.5% YoY consumption growth guidance for FY24. Business development pipeline remains strong with deals expected to be announced in Q2FY24. Retain ADD with TP of Rs1710/share.