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Ramp-up of new assets drives growth in portfolio

Revenue/EBITDA in line; marginal miss on PAT

* Phoenix Mills (PHNX) posted 2QFY25 revenue of INR9.2b, up 5% YoY (in line). EBITDA stood at INR5.2b, up 2% YoY (6% below est.) as margin contracted 143bp YoY. PAT declined by 14% YoY to INR2.2b (12% below est.), with a margin of ~24%.

* For 1HFY25, PHNX generated OCF (post-interest) of INR8.1b (down 8% YoY) and incurred INR13.8b on capex. It also received INR2.7b from JV partners, and hence, the consolidated net debt increased sequentially to INR24b.

New malls drive strong consumption and rental growth

* Total consumption stood at ~INR33b, up 24% YoY, driven by a healthy ramp-up in new malls at Bengaluru, Pune, and Ahmedabad. Among the mature assets, PMC Mumbai delivered 6% YoY growth, aided by upgradation measures implemented in the last few years.

* On an LfL basis (excluding the contribution from new malls), consumption rose 5% YoY. Among the key categories, jewelry/hypermarkets outperformed with 33%/12% YoY growth, while electronics stood flat at 3% YoY. The entertainment and multiplex segment declined 15% YoY in 2Q.

* Retail income growth (of 22% YoY) was in line with consumption growth. Rental income was INR4.7b and EBITDA came in at INR5b (up 22% YoY), with a margin of 104%.

* Trading occupancy stood at 92% as of Sep’24, while leased occupancy was 97%. PHNX expects to achieve trading occupancy of >95% by FY25 end, which would drive 16% growth in retail rental income in FY25

Steady show in hospitality; office rentals to scale up from FY26E

* Hospitality: Occupancy improved YoY to 85% for St. Regis (vs. 82% in 2QFY24) but declined to 67% at Marriott Agra (vs. 69% in 2QFY24). St. Regis reported an ARR of INR17,320, flat YoY. Marriott Agra’s ARR grew by 8% YoY to INR4,569. Total income was up 16% YoY at INR1.3b. EBITDA stood at INR0.53b, up 15% YoY.

* Commercial performance: Occupancy in office assets was steady at 70% and rental income rose 19% YoY to INR540m. EBITDA came in at INR340m, up 31% YoY.

* PHNX is expected to deliver 1.6msf of office assets across Bengaluru, Pune, and Chennai over the next 9-12 months. Bengaluru office assets will become operational in 4QFY25 and can reach 80-90% occupancy in FY26. We expect a 39% CAGR in its office rental income over FY24-FY27

Highlights from the management commentary

* LfL consumption growth: LfL growth was 5% in 2Q and 6% in 1H, guided by jewelry/hypermarkets.

* Business development: All the assets within the current pipeline will be delivered by FY27, and itis currently evaluating opportunities that can support growth beyond FY27. PHNX acquired two land parcels - one in Coimbatore (9acres) and Chandigarh Mohali (13.1). With the acquisition in Coimbatore & Chandigarh Mohali, PHNX will double its portfolio by FY30.

* Status of key upcoming assets: Thane and Bengaluru lands are under the designing stage, and the development mix is not yet finalized. The management intends to launch the residential project in Kolkata in 1-2 quarters. The excavation is complete for the Surat Mall, and construction is underway, which would take three years to complete

Valuation and view

* While new malls continue to ramp up well, PHNX is taking measures to accelerate consumption at mature malls. These initiatives, along with a further increase in the trading occupancy, will help in sustaining healthy traction in consumption. However, in the absence of completion of any major new mall, we expect the growth to decelerate in FY26-27.

* That said, we remain confident in the long-term consumption growth, which should be at least ~7-8%. We value the mature malls at 20x EV/EBITDA and the new malls at 25x EV/EBITDA. Reiterate Neutral with a TP of INR1,652.

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