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Retail consumption drives robust performance…

About the stock: Phoenix Mills (PML) is a leading retail mall developer and operator in India. It is into retail-led, mixed-use properties and has developed 17.5+ mn sq ft of retail, commercial, hospitality and residential asset class.

* PML has an operational retail area of ~7 mn sq ft spread over nine operational malls, and is developing ~6 mn sq ft of retail space. It has ~2 mn sq ft operational in commercial segment and plans to add ~5 mn sq ft

Q2FY23 Results: PML reported a strong operating performance.

* Reported revenues grew 75.3% YoY, 13.4% QoQ to | 651 crore with growth driven by retail portfolio. Retail revenues grew ~95.4% YoY at | 456.3 crore, while hospitality revenues were up 171% YoY at | 93.4 crore. Retail rental at | 313 crore, was at ~121% of Q2FY20 (pre-Covid level) and ~110% on like to like basis. Consumption in Q2FY23 at | 2198.6 crore, was ~130% of Q2FY20 (pre-Covid), and ~118% on like to like basis

* Reported EBITDA margins were up 223 bps QoQ to 58.5%, with operating leverage kicking in along with lower other costs. The company reported a PAT of | 185.8 crore, up 212.4% YoY, ~14% QoQ (on adjusted basis)

What should investors do? PML’s share price has grown at 25% CAGR over the past five years (from ~| 511 in November 2017 to ~| 1532 levels in November 2022).

* We maintain our BUY rating as PML remains a quasi-play on India’s consumption story, given the quality of assets & healthy balance sheet

Target Price and Valuation: We value PML at | 1775/share, valuing it at 25% premium to NAV given the business development activities lined up.

Key triggers for future price performance:

* Focused on core competence in retail malls; under-development retail GLA of ~6 mn sq ft to aid growth. Over the medium term, we expect retail rental income to grow at a CAGR of ~16% to | 2159 crore in FY20-25E

* Strong addition pipeline in the commercial segment, which is likely to expand to ~7 msf in three to four years, from 2 msf currently

* Healthy balance sheet and strategic expansion plan to add organic/inorganic retail assets

Alternate Stock Idea: Besides PML, we like Brigade Enterprises in real estate space.

* A play on well-placed Bengaluru real estate

* BUY with a target price of | 595

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