Phoenix Mills: Retail consumption growth muted; Hotels continue to shine

10 Apr 2023 , 11:20 AM

Recommendation: Buy

Target Price: Rs 1540

Phoenix Mills reported a 4yr Cagr of 2.6% for March 2023 Retail consumption; for FY23, LTL consumption growth was ~6% Cagr over FY20. Rental collections are up 7.1% QoQ for Q4FY23. The Hospitality portfolio continues to witness strong ARRs and occupancy, clocking in the highest-ever revenues MoM. Near-term earnings growth visibility is high, with PHNX stabilising ~4msf of malls over next 2-3 quarters, driving >40% increase in rental income over this period.

Muted Retail consumption for March: 

PHNX reported consumption levels of March 2019 at 139%, adjusted for new malls, it was 111%. This implies a 4yr Cagr of 2.6%, and a 6% YoY growth. Mgmt shared that consumption was negatively impacted by ~1% on LTL basis, due to renovation at Phoenix Palladium, Mumbai. Within the Retail portfolio — Phoenix Palladium, PMC Bangalore and Pune fared well, while PMC Mumbai and Chennai reported muted LTL growth.

Strong rental growth visibility over FY24/25: 

PHNX clocked 70% and 43% trading occupancy for March’23 within the fourth and first month of launching its Indore and Ahmedabad mall, respectively. This will tread towards leased occupancy of 93/94% respectively, over next few quarters. PHNX’s new malls at Indore, Ahmedabad, Pune and Bangalore (~4msf) will add >Rs6bn to gross rentals (PHNX share 50%), to be stabilised fully by FY25. Further, PHNX is also developing malls at Kolkata (with CPPIB) and at Surat (with GIC), which will commence operations in FY25 and beyond.

Business development in focus: 

Beyond the steady retail mall addition of >1msf annually, PHNX has acquired a land in Kolkata for Residential use and a land in NCR for Warehousing. It plans to add retail greenfield projects across Jaipur, Chandigarh, NCR, Hyderabad and Navi-Mumbai/Thane; across its GIC and CPPIB platforms. We build 30% PAT Cagr over FY20- 25. Analyts of IIFL Capital Services NAV of Rs1,540 does not build any business development value.