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On a ramp-up mode Consumption growth and space optimization to drive retail scale-up

* In 2QFY27, Phoenix Mills' (PHNX) retail rental income increased 15% YoY to INR6.1b, while retail EBITDA rose 18% YoY to INR6.4b. Consumption increased 25% YoY to INR46.9b, driven by healthy traction across the operational portfolio. Phoenix Mall of Asia, Bengaluru (+68% YoY) stood out as the top performer, while all other malls posted strong 10-25% growth.

* Growth was supported by the Fashion & Accessories segment, which reported 22% growth while contributing 51% to consumption. The electronics segment witnessed robust demand, which grew 39% YoY, followed by the jewelry segment, which posted 28% YoY growth.

* The company remains confident of crossing 15% YoY rental growth guidance in FY27. PHNX is scaling up its retail GLA to 18+msf by FY30 from the current levels of 11.5msf. The company is also currently optimizing store layouts to improve trading density. In addition, ~58% of the GLA is due for renewals over FY27-30, providing further rental growth opportunity. We bake in a 13% CAGR in retail revenue to reach INR28b over FY26-28.

Leasing traction strengthens office portfolio growth

* In 2QFY27, office income increased 64% YoY to INR890m and EBITDA came in at INR560m, rising 61% YoY. Margin stood at 63%, contracting 9pp YoY.

* Operational office assets posted improvement in occupancy to 79%, while the established office assets in Mumbai and Pune (combined GLA of ~2.0 msf) maintained a healthy 83% occupancy. Leased occupancy across new developments (combined GLA of ~2.9 msf) increased by 13pp QoQ to 77%, showcasing the company’s capability in operationalizing its assets.

* The company expects its office portfolio to scale up to 9msf of GLA by FY30 from the current levels of ~5msf. We expect rental income from the office segment to reach INR7.3b by FY28.

Valuation and view

* In the retail portfolio, while new malls continue to ramp up well, PHNX is implementing measures to accelerate consumption at mature malls. These initiatives, along with a further increase in trading occupancy, are expected to help PHNX sustain healthy traction in consumption. New asset additions in the coming years would further lead to better growth in rental income over the medium term.

* Further, the office portfolio has ramped up well, whereas the Hospitality segment continues to remain resilient.

* Given the improvement in performance, we have slightly increased our revenue estimates by 2-4% and EBITDA estimates by 3-4% for FY27-28. Hence, our SoTP-based TP has increased to INR2,280. Reiterate BUY.

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