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The Phoenix Mills’ (PHNX) FY21 and FY22 operations were impacted by mall shutdowns across India owing to successive Covid waves. In FY22, like-to-like mall consumption was at 64% of FY20 levels with LTL rental income at 72% of FY20 levels (including spill over from FY21). However, with waning Covid impact, in Q1FY23 (Apr-Jun’22), LTL consumption across malls stood at Rs19.8bn or 111% of Apr-Jun’19 (Q1FY20) levels which translated into Q1FY23 retail LTL EBITDA of Rs2.9bn or 115% of Q1FY20 levels. Similarly, in Q2FY23, Aug’22 (LTL) consumption across malls has come in at 114% of Aug’19 levels with Jul’22 LTL consumption at 120% of Jul’19 levels. Owing to continued consumption strength, we model for FY23E rental income of Rs13.7bn (Rs12.2bn on LTL basis vs. Rs10.3bn in FY20). With Indore and Ahmedabad malls to open in FY23E and Pune (Wakad) and Bengaluru (Hebbal) in FY24E, we expect 17% rental income CAGR over FY20-25E. We reiterate our BUY rating with a revised target price of Rs1,638/share (earlier Rs1,645) based on 20% premium to our Mar’23E NAV of Rs1,371/share which includes increase in Palladium, Mumbai leasable area and considers 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.

* Robust balance sheet: Since Aug’20, the company has raised Rs46.8bn of cumulative equity through a QIP of Rs11.0bn, Rs3.8bn from CPPIB for its new Kolkata mall, Rs7.4bn from CPPIB as further equity infusion in its existing retail platform with CPPIB in its Bengaluru mall SPV, Rs11.1bn from GIC Singapore for a retail platform housing operational Kurla, Mumbai and Pune malls and offices and Rs13.5bn from CPPIB for 49% stake in Phoenix Rise office and retail mixed-use project in Lower Parel, Mumbai. As a result, while the company’s consolidated gross debt has marginally reduced to Rs43.8bn as of Mar’22 from Rs45.7bn in Mar’20, consolidated net debt has reduced to Rs18.8bn as of Mar’22 (Rs12.5bn company share) from Rs42.6bn in Mar’20. As of Mar’22, the company has a total estimated capex of Rs93.2bn across its ongoing projects (Rs50.7bn for malls and Rs42.bn for offices), of which pending estimated capex over FY23- 26E stands at Rs50.5bn (Rs17.6bn for malls and Rs32.3bn for offices). We expect the company to generate annual operating cash flow (pre-capex) of Rs14-15bn over FY23-25E which can comfortably fund the balance capex.

* Estimated rental income CAGR of 17% over FY20-25E: PHNX will have ~13msf operational mall space by FY26E (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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