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Pressing the growth pedal

The Phoenix Mills (PHNX) has clocked a CAGR of 14% in consumption and 13% in retail rental across its mall portfolio over the last decade (FY13-23). Further, LTL consumption base for FY23 across the company’s operational malls was 19% higher than FY20 levels. With the company’s Wakad, Pune having opened in Sep’23 and Hebbal, Bengaluru also expected to open shortly and Indore/Ahmedabad malls having opened in FY23, the focus now shifts to growth from new assets. We expect PHNX to achieve a 17% rental income CAGR (ex-new Kolkata asset) over FY20-25E, resulting in INR22.4bn of rental income in FY25E vs. ~INR10.3bn in FY20. We maintain our ADD rating with a revised target price of INR1,928/share (earlier INR1,851) based on 25% premium (earlier 20%) to 1x Mar’24E NAV of INR1,542/share considering opportunities from new offices and malls. Key risks are fall in mall occupancies and rentals.

Onset of festive season to drive consumption uptick

While the LTL consumption base for FY23 across the company’s operational malls was 19% higher than FY20 levels, Q1FY24 (Apr-Jun’23) LTL consumption came in at 109% of Q1FY23 (Apr-Jun’22) levels on a high base. In Jul’23, YoY LTL consumption growth slowed down to 6% owing to monsoon impact in Mumbai. However, as per the company, with monsoon impact waning, and festive season beginning from Sep’23 along with an expected 3-5% ramp up in trading occupancy in H2FY24 across operational assets to 93-95%, recovery in categories such as multiplexes from Q2FY24 is likely to aid overall consumption as spillover from multiplex footfalls feeds into consumption in other categories. LTL consumption growth for FY24E is likely to be in double digits (12.5% LTL growth guidance, implying rental income growth of 10-12%). We currently factor in LTL rental growth of 10% across operational malls for FY24E and estimate FY24E rental income of INR18.0bn, of which INR3.7bn is likely to be from four new malls (Ahmedabad/Indore/Bengaluru/Pune), and LTL rental income of INR14.3bn (9% LTL growth).

Expect rental income CAGR of 17% over FY20-25E

PHNX will have ~14msf operational mall space by FY27 (6.9msf currently operational). We expect PHNX to achieve a 17% rental income CAGR (ex-new Kolkata asset) over FY20-25E, resulting in INR22.4bn of rental income in FY25E vs. ~INR10.3bn in FY20. Of the INR22.4bn of gross rental income in FY25E, PHNX’s share is ~77% or INR17.3bn. Beyond the current pipeline of upcoming projects, the company continues to evaluate new opportunities in Tier 1 and Tier 2 cities across India such as the MMR, the NCR, Jaipur, Chandigarh, etc. to drive growth.

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