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Our Take:

Phoenix Mills Ltd (PML) is a leading retail mall developer and operator in India. It has pioneered in retail-led, mixed-use properties in India and has developed over 17.5 mn sq ft of retail, hospitality, commercial, and residential asset classes. The company has an operational retail area of approximately 7 mn sq ft, spread over nine operational malls in six gateway cities of India. It is also developing five malls with over 6 mn sq ft of retail space in five gateway cities.

Besides retail, it operates commercial offices and has a gross leasable area of 1.5 mn sq ft. It plans to add approximately 5 mn sq ft of commercial office space across existing retail properties, going forward. Consumption increased from Q3FY21 onwards on account of (a) increase in mall operating hours across cities, (b) resumption of F&B and (c) festive season pick-up. Consumption across all malls grew around 5% QoQ to Rs 1,440 crore in Q4FY21 (Rs 3,330 crore for the full year FY21, 69% approximately of the FY20 level on a like-to-like basis).

Gross consumption reached approximately 100% of Q4FY20 levels. Excluding the contribution of Phoenix Palassio, which was launched in July 2020, consumption recovery was 90% on a like-to-like basis in Q4FY21 versus Q4FY20. In line with consumption, retail collections continued to witness sharp improvements. Collections further improved 42% QoQ to Rs 370 crore in Q4FY21, taking the total collection to Rs 760 crore in FY21.

Similar recovery trends have been observed in footfalls and four-wheeler traffic at Phoenix malls during Q4FY21, where footfalls and four wheelers across all malls were at 83% and 93% respectively of the previous year’s level. Further, PML is looking for inorganic growth and new markets to diversify its geographical presence, in places like Hyderabad, Chandigarh, Kolkata and Gurgaon, apart from being present in Mumbai Metropolitan Region and Bengaluru. Supply shrinkage, low interest rates, pent-up demand, economic easing and strong IT/ITES sector are driving presales to a lifetime high for retail mall developers. Launches may help sustain the momentum due to pent-up demand.

Valuations & Recommendation:

In FY21, PML posted good consumption, footfalls, and collection numbers as the economy gradually opened. We expect stronger recovery (owing to pent-up demand across the country), after the economy opens, following the second wave (though now there are talks of a third wave). FY21 retail rental income stood at Rs 563.2 crore - 55% of FY20 rental - higher than the initial guidance of 45-50%.

Even during the worst phase for the retail industry, PML has achieved impressive preleasing at attractive rentals for its under construction malls - palladium Ahmedabad (50% pre-leased at Rs 155 per sq ft per month), Hebbal Bengaluru (30%, Rs 160 pspm) and PMC Indore (65%, Rs 90 pspm). Its Lucknow mall with 189 brands (24 additional stores) has performed exceedingly well in Jan, Feb, and March with Rs 135 crore of consumption in Q4FY21 and 75% trading occupancy.

Strong traction was seen in residential sales, mainly as the Kessaku property was reconfigured into smaller units and there was robust demand for ready-to-move-in inventory. The company sold and registered agreements for inventory worth Rs 63 crore during Q4FY21 and Rs 172.5 crore during FY21. Q4FY21 collections were Rs 49.9 crore and Rs 138.9 crore for FY21. Although the second wave and expectations of a third wave has dampened the near-term prospects, the long-term outlook is positive.

We currently like the stock, given the company’s (a) large scale mall business, (b) healthy internal accruals leading to positive cash flows, (c) low debt, (d) aggressive capex, (e) QIP fund raise/investments by GIC/CPPIB, (f) geographic diversification, (g) FDI inflows, and (h) expected recovery in retail consumption. PML is one of the best reopening trades. We think investors can buy PML at the LTP and add on declines to Rs.727-735 band for a target of Rs.973 over the next 2-3 quarters (see SOTP value calculation below).

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