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Strong end to FY23, all eyes on LTL growth for FY24E

The Phoenix Mills (PHNX) clocked Mar’23 like-to-like (LTL) consumption across malls at 111% of Mar’19 levels (Mar’20 was first Covid impacted month hence not comparable). However, Mar’23 LTL consumption was at 106% of Mar’22 levels. As we have been highlighting, while the FY23 LTL consumption was expected to range between 13-14% of FY20 (pre-Covid) levels adjusted for Mar’20 mall closures, with a high base of FY23, we model for 5% LTL consumption/rental CAGR from FY24E. We model for FY23E rental income of Rs13.4bn (Rs12.0bn on LTL basis vs. Rs10.3bn in FY20) and with Indore and Ahmedabad malls opening in Dec’22/Feb’23 respectively and Pune (Wakad) and Bengaluru (Hebbal) in H1FY24, we expect 17% rental income CAGR over FY20-25E. We retain our BUY rating with an unchanged target price of Rs1,645/share which factors in the new Surat mall/Kolkata residential project and retain our 20% premium to Mar’23E NAV of Rs1,371/share considering opportunities from office capex and new malls. Key risks are fresh Covid waves impacting consumption and fall in mall occupancies and rentals.

* Consumption growth strong in FY23, high base effect may result in single digit LTL growth from FY24E: While the consumption base for FY23E has seen a onetime reset in consumption/rentals along expected lines at ~13-14% over pre-Covid levels (~4.5% CAGR over FY20-23E), we model for 5% LTL rental CAGR from FY24E and new malls becoming operational should drive rental growth along with increase in area at High Street Phoenix asset over FY24-25E. For FY23, the company has reported overall rental collections (including CAM) of Rs21.6bn which would imply pure rental income of over Rs13bn for FY23 (our estimate is Rs13.4bn).

* Surat mall to drive long-term growth: We have assumed commencement of construction of the new 1.0msf Surat mall in FY24 and completion in H2FY27 with initial rentals to be ~Rs140/psf/month. We expect the Surat mall to contribute Rs1.6bn annual gross rental income FY28 onwards at over 90% occupancy which implies a 13.2% gross rental yield on invested capital of Rs12.5bn in first full year of stabilised mall operations.

* Estimated 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 Rs22.4bn of rental income in FY25E vs. ~Rs10.3bn in FY20. Of the Rs22.4bn of gross rental income in FY25E, PHNX’s share is ~77% or Rs17.3bn.

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