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Strong consumption growth in Apr-Jun’22

The Phoenix Mills (PHNX) saw Q1FY23 (Apr-Jun’22) like-to-like (LTL) consumption across malls at Rs19.5bn or 109% of Apr-Jun’19 (Q1FY20) levels while overall Q1FY23 consumption of Rs21.6bn stood at 121% of Q1FY20 levels. While Jun’22 was a slower month with LTL consumption at 97% of Jun’19 levels, with retailers’ End of Season sale delayed to Jul’22, we expect consumption to bounce back going ahead and we model for FY23E rental income of Rs12.7bn (Rs11.0bn on LTL basis vs. Rs10.2bn in FY20). With Indore and Ahmedabad malls to open in FY23E and Pune (Wakad) and Bengaluru (Hebbal) in FY24E, we expect 14% rental income CAGR over FY20-25E. We reiterate our BUY rating with a revised target price of Rs1,392/share (earlier Rs1,334) as we ascribe a higher premium to NAV of 20% (earlier 15%) to our Mar’23E NAV of Rs1,160/share considering growth opportunities from new office capex and new malls (including Surat). Key risks to our call are a fresh Covid wave impacting mall consumption and fall in mall occupancies and rentals.

Consumption recovery firmly on track:

In Q3FY22, LTL consumption across PHNX’s malls stood at Rs18.4bn or 89% of Q3FY20 levels. In Jan’22, LTL consumption stood at 70% of Jan’20 levels in spite of Omicron disruption in mall operations for the month, and in Feb’22, consumption levels were back to 94% of pre-Covid levels. In Mar’22, consumption across malls stood at Rs5.6bn or 105% of Mar’19 levels on LTL basis (Mar’20 saw mall shutdowns hence not comparable) while Q4FY22 consumption of Rs14.8bn stood at 91% of Q4FY19 levels on LTL basis. This momentum has carried forward into Q1FY23 (AprJun’22) with LTL consumption across malls at Rs19.5bn or 109% of Apr-Jun’19 (Q1FY20) levels) basis while overall Q1FY23 consumption of Rs21.6bn stood at 121% of Q1FY20 levels.

Rental collections see further QoQ traction:

As per the company, with ~95% of retailers having moved back to pre-Covid minimum guarantee rentals from Jan’22, it has clocked Q4FY22 retail EBITDA of Rs2.5bn (96% of pre-Covid levels) and FY22 retail EBITDA of Rs8.0bn (72% of pre-Covid levels). In Q1FY23, retail rental collections (including CAM) increased by 10% QoQ to Rs5.3bn and Phoenix Palladium saw addition of 0.15msf of new Gross Leasable Area in Q1FY23.

Estimated rental income CAGR of 14% over FY20-25E:

PHNX will have ~13msf operational mall space by FY26E (6.9msf currently operational). We expect PHNX to achieve a 14% rental income CAGR (ex-new Kolkata asset) over FY20-25E, resulting in Rs19.5bn of rental income in FY25E vs. ~Rs10bn in FY20. Of the Rs19.5bn of gross rental income in FY25E, PHNX’s share is ~76% or Rs14.8bn.

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