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Strong consumption recovery across malls …

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

Q1FY23 Results: PML reported a strong operating performance

* Reported revenues grew ~181% YoY to | 574.4 crore, driven by retail portfolio as retail revenues grew by ~2.5x YoY at | 408.6 crore while hospitality revenues were up by 5.4x YoY at | 95.9 crore. Retail rental reached | 322.4 crore, at ~124% of Q1FY20 (pre-Covid level) and ~113% on a like-to-like basis. Consumption in Q1FY23 was ~123% of Q1FY20 (preCovid) and ~111% on a like to like basis

* Reported EBITDA margins were up 760 bps QoQ to 56.2%, with operating leverage kicking in. EBITDA at | 322.9 crore, was up 324% YoY and 34% QoQ. Adjusted PAT at | 161.9 crore was up 54.5% QoQ

What should investors do? PML’s share price has grown at 19.5% CAGR over the past five years (from ~| 539 in August 2017 to ~| 1312 levels in August 2022).

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

Target Price and Valuation: We value PML at | 1630/share as we assign 20% premium to NAV given the strategic inorganic expansion plans in place

Key triggers for future price performance:

* Focused on core competence in retail malls; retail GLA of ~6 mn sq ft under development to aid growth. Over the medium term, we expect retail rental income to grow at a CAGR of ~16% to | 2157 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

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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