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Sound performance across segments

Phoenix Mills (PHNX) reported a healthy quarter backed by robust consumption growth across malls (like-for-like growth 9% YoY). Growth in 2HFY24 should be stronger, helped by a seasonally strong period and opening of four new malls recently. PHNX has acquired an 11.5acre land parcel in Thane (W) for INR 4.3bn having a development potential of ~3msf. It is currently evaluating the best use case for the land, which will be finalised in 2-3 months. We believe PHNX remains well-placed with low debt to equity, partnerships with global funds, strong earnings trajectory on the back of sustained consumption growth and development of new assets. We maintain our BUY rating with a revised SOTP based TP of INR 2,270 (earlier INR 2,010) based on 20% premium to the Retail segment Sep’24E NAV.

* 2QFY24 financial performance: Revenue grew to INR 8.75bn (+34% YoY; +8% QoQ) while EBITDA came in at INR 5.06bn (+33% YoY; +3% QoQ) and EBITDA margin dropped to 57.8% (down 67bps YoY; down 291bps QoQ) on account of higher employee expenses and other expenses. PAT was INR 2.53bn (+36% YoY; +5% QoQ). Retail rental income came in at INR 3.9bn (+25% YoY, +4% QoQ), while Retail EBITDA was INR 4.0bn (+26% YoY, +4% QoQ). Excluding new malls, retail rental income and Retail EBITDA recorded annual growth of 8% and 11% respectively. Revenue from the office segment stood at INR 470mn (+9%/+5% YoY/QoQ), with EBITDA margin of 56% (-100 bps YoY/-200 bps QoQ).

* Healthy growth in consumption: Retail consumption in 2QFY24 stood at INR 26.4bn growing 20% YoY and 2% QoQ. On a like-for-like basis, consumption grew 9% YoY (excluding the new malls and closure of the lifestyle block in Phoenix Palladium Mumbai) which was in line with our estimates. In 1HFY24, the fashion and accessories segment contributed 50% of the consumption at the retail malls, which came in at INR 52.1bn. Growth was led by categories, namely, Hypermarket (51%, on a low base), Jewellery (25%) and Multiplexes (22%). Current (Oct’23) trading occupancies at Palladium Ahmedabad and Phoenix Citadel Indore have seen significant ramp-up since launch and stood at 77% and 90% respectively. The management expects similar pick-up in the newly launched malls in Pune and Bengaluru.

* Development update: PHNX has received all development permissions for Phoenix Grand Victoria, Kolkata and currently excavation and foundation work is under progress. Construction of the Surat mall is expected to begin in 3QFY24. The retail expansion of Phoenix Palladium, Mumbai, is expected to be completed by FY24. Last mile finishing work is underway at the first phase (0.8msf) Phoenix Asia Towers (Hebbal). The first tower at Millennium Towers (Pune) is expected to be ready in 2QFY25 and the second one will be completed in 4QFY25. Project Rise and the expansion at Whitefield are also progressing as per timelines.

* Valuation: We maintain our BUY rating with a revised SOTP based TP of INR 2,270 (earlier INR 2,010) based on 20% premium to the Retail segment Sep’24E NAV.

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