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Best play on India’s retail story

We compared Phoenix Mills (PHNX) with a sample comprising its tenants on three parameters and found that PHNX stands out on earnings growth and margin profile; however, as with all real estate development companies, its returns are at the lower end. Additionally, its unique portfolio of brands is the best proxy to play across the entire spectrum of the discretionary wallet spends of an average Indian consumer. We maintain our BUY rating and roll forward to Mar’25 with a revised SOTP-based TP of INR 2,520 (earlier INR 2,270). We ascribe a 20% premium to the Retail segment Mar’25E NAV as the small portfolio is expected to deliver a higher earnings growth compared to its tenant base (majorly consisting of discretionary consumer companies).

? Best proxy to play India’s consumption growth: As highlighted in our previous report, India’s retail industry is expected to grow at a FY22-27E CAGR of 14% to INR 120.59trln. PHNX has a presence in 5 of the top 8 cities and is well-placed to benefit from the underlying growth in the retail industry. We have compared PHNX to some of the listed consumer discretionary names (a sample representing PHNX’s tenants) on three parameters, i) earnings growth, ii) margin profile and iii) expected returns (Exhibit 1). PHNX stands out on earnings growth and margin profile. However, as with all real estate development companies, returns are at the lower end. This is primarily because of a sizeable amount of capital being employed in land bank / development assets.

? Non-replicable portfolio offering diversity across geographies, segments and companies: The larger malls have 250+ stores, which implies an equal number of clients/occupiers. On an aggregate portfolio basis, we estimate that PHNX houses 500+ unique brands across different segments of the discretionary consumption basket (QSR, apparel, multibrand retail, multiplexes and other modern retail formats like footwear, jewellery etc.). This unique portfolio of brands is the best proxy to play across the entire spectrum of the discretionary wallet spend of an average Indian consumer.

? HSP Mumbai, a source of liquidity to fund its future expansions: High Street Phoenix (HSP) in Mumbai’s Lower Parel area is a landmark retail concept in Mumbai with over 300 stores and 90%+ occupancy levels. Built as a ‘consumption centre’, HSP provides c.1msf of retail area, alongside residential, office and hotel developments. The average rental at HSP has grown at a 10-year CAGR of 8%, which demonstrates the leadership of the asset. It has a stable cash flow profile (~INR 3bn annually) and is a source of liquidity to fund its future expansions.

? Maintain BUY with a Mar’25 TP of INR 2,520: Rental revenue from the retail portfolio is expected to grow at 30% CAGR over FY23-26E. We maintain our BUY rating and roll forward to Mar’25 with a revised SOTP-based TP of INR 2,520 (earlier INR 2,270) based on 20% premium to the Retail segment Mar’25E NAV. Key risks include i) the potential delay in stabilisation of malls, ii) a delay in the commissioning of new malls, and iii) threat of OTT platforms and e-commerce

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