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Retail behemoth on a roll

Retail development – Trailblazer trajectory

The Phoenix Mills (PHNX IN), in a trailblazer trajectory, has evolved to an established retail-led mixed-use developer in India with 13 operational malls across eight cities, from a single retail destination in early 2000s. Not surprisingly, it is the preferred choice to feature prime domestic and global brands. Also, consumption at PHNX's malls saw a CAGR of 13% to INR 113bn through FY20-24, showcasing steady recovery post-Covid. In FY23, PHNX achieved its FY19 vision to double its retail mall portfolio, by expanding the portfolio to 11msf from 6msf through the period. PHNX has a strong record of execution and operation, brand partnerships, and focused strategy to tap high potential markets. It is now poised for further expansion, aiming to grow its operational retail mall portfolio to >14msf by end-2027.

Diversification pivot #1: Office portfolio – >3x growth on the anvil

PHNX, historically a specialized retail company with limited exposure to the office portfolio, is set to fortify its commercial office portfolio by actively constructing ~5msf of office space within its retail assets in the next five years. This will expand the office portfolio to 7msf by FY28, marking >3x rise from 2msf in FY24. It is planning to build and operate offices atop or adjacent existing and upcoming malls to enhance the blended yield of assets. It has a portfolio of well-located, mixed-use destination malls and is set to benefit from India’s consumption growth.

Diversification pivot #2: From Retail to Residential

PHNX, alongside its primary focus on malls and commercial offices, has also ventured into residential property development and owns two hospitality assets. This diversification supports its business risk profile. It holds ready inventory in its residential projects, and pending sales and payments collection are poised to boost operating cashflow, facilitating its strategic expansion plans.

Valuation

Medium term, expect retail rental income to see a CAGR of ~24% in FY23-26E, largely led by the ramp-up in occupancy across new malls and from rental renewals. We value operational Retail and office assets at a cap rate of 7-9% and upcoming assets on DCF with terminal value calculated on steady-state rentals and discounting back to March 2026E at a WACC of 11%. Hotel assets are valued at 15x March 2026E EBITDA and residential segment on NPV discounted at a WACC of 11%. To factor in business development opportunities, we ascribe a 25% premium to NAV. We initiate with Accumulate at a TP of INR 3,310, on 1.25x one-year forward NAV.

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SEBI Registration number is INH000000933