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Strong start to FY24, on track to achieve double digit LTL consumption growth in FY24

The Phoenix Mills (PHNX) clocked Q1FY24 (Apr-Jun’23) like-to-like (LTL) consumption across malls at 109% of Q1FY23 (Apr-Jun’22) levels. Adjusted for store closures in Lifestyle Block of Palladium, Mumbai LTL consumption would have stood at 110% of Q1FY23 levels. With an expected ramp up in trading occupancy across operational malls of 5% along with inflation/volume linked consumption growth, the company guides for 12.5% LTL consumption growth in FY24. We currently factor in LTL rental growth of 10% across operational malls for FY24E and estimate FY24E rental income of Rs18.0bn, of which Rs3.7bn is likely to be from four new malls (Ahmedabad/Indore/Bengaluru/Pune), and LTL rental income of Rs14.3bn (9% LTL growth). We retain our BUY rating with a revised target price of Rs1,851/share (earlier Rs1,712) as we roll forward to Mar’24E NAV and retain our 20% premium to NAV of Rs1,542/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, FY24E may see double digit LTL growth: While the LTL consumption base for FY23 across the company’s operational malls was 19% higher than FY20 levels, Q1FY24 (Apr-Jun’23) LTL consumption came in at 109% of Q1FY23 (Apr-Jun’22) levels on a high base. As per company guidance, LTL consumption growth for FY24E is likely to be 12.5%, implying rental income growth of 10-12%. The consumption growth is expected to be driven by a 5% ramp up in trading occupancy in FY24E across operational assets to 93-95% while balance growth of 6-7% will be a function of inflation/volume mix. Hence, we factor in LTL rental growth of 10% across operational malls for FY24E and estimate FY24E rental income of Rs18.0bn, of which Rs3.7bn is likely to be from four new malls (Ahmedabad/Indore/Bengaluru/Pune), and LTL rental income of Rs14.3bn (9% LTL growth). Retail collections (including CAM) in Q1FY24 stood at Rs6.2bn (up 18% YoY).

* Expect 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. Beyond the current pipeline of upcoming projects, the company continues to evaluate new opportunities in Tier 1 and Tier 2 cities across India such as MMR, NCR, Jaipur, Chandigarh, etc. to drive future growth.

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