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2025-08-05 12:55:53 pm | Source: Motilal Oswal Financial Services Ltd
Neutral Phoenix Mills Ltd for the Target Rs.1,646 by Motilal Oswal Financial Services Ltd
Neutral Phoenix Mills Ltd for the Target Rs.1,646 by Motilal Oswal Financial Services Ltd

ISMDPL stake buyout to unlock value across key assets

Consumption grows 12% in 1QFY26

* Phoenix Mills (PHNX) reported 1QFY26 revenue of INR9.5b, up 5% YoY/ down 6% QoQ (15% below estimate), while EBITDA came in at INR5.6b, up 6% YoY/1% QoQ (19% below estimate). Margin stood at 59.2%, up 48bp YoY/415bp QoQ (259bp below our estimate).

* Adj. PAT stood at INR2.4b, up 3% YoY/down 11% QoQ (36% miss). PAT margin was 25.3%, down 47bp YoY/124bp QoQ (822bp below estimate).

* In 1QFY26, group net debt stood at INR26.6b, down INR0.5b from 4QFY25

 

Retail witnesses strong consumption

* Total consumption stood at ~INR35.9b, up 12% YoY, driven primarily by Phoenix Ahmedabad and the continued ramp-up of Phoenix Mall of the Millennium and Phoenix Mall of Asia.

* Fashion/jewelry/multiplex outperformed with 14%/15%/26% YoY growth, while electronics grew 1% YoY and F&B rose to 2% YoY.

* Gross retail collections at INR8.5b were up 7% YoY. The company reported rental income of INR5.1b, up 4% YoY.

* Retail EBITDA stood at INR5.4b, up 4% YoY.

* The weighted average trading occupancy stood at 89% (91% in 4QFY25). However, leased occupancy stood at 95%+. The gap is strategic and is because of initiatives taken to churn, resize and relocate to establish premium positioning for the mall and boost footfall.

* Trading occupancy was flat QoQ at 95% for Palladium Ahmedabad and 92% for Mall of the Millennium, Pune; however, it increased for Mall of Asia, Bengaluru, to 88% from 83% in 4QFY25.

 

Office occupancy rises, while Hospitality occupancy declines

* Hospitality: Occupancy was at 83% in St. Regis in 1QFY26 (vs. 92% in 4QFY25) and 71% for Marriott Agra (vs. 87% in 4QFY25). St. Regis/Marriott Agra reported ARR of INR16,425/INR4,166, up 13%/5% YoY.

* Total income for St. Regis/Marriott Agra was INR1.2b/INR110m, up 10%/24% YoY. EBITDA stood at INR570m for St. Regis and INR16m for Marriott Agra, up 19% each YoY, with margins of 47% and 15%, respectively.

* Commercial performance: Occupancy in the office portfolio increased by 3% to 70%. Gross leasing stood at 0.41msf.

* Income from commercial offices stood at INR520m, up 4% YoY, and EBITDA came in at INR340m, up 8% YoY.

* EBITDA margin stood at 65% in 1QFY26 vs. 63% in 1QFY25.

 

Residential portfolio to expand by 1msf

* In 1QFY26, the company achieved gross sales of INR1.7b, while collections stood at INR1b. ASP was at INR27,000psf.

* The company plans to expand its residential portfolio by 1msf by FY27.

 

Acquisition of 49% stake of ISMDPL

* PHNX board has approved the acquisition of the remaining 49% stake in Island Star Mall Developers Pvt. Ltd. (ISMDPL) from CPP Investments, increasing its ownership to 100%, pending shareholder and regulatory approvals. The deal consideration of ~INR54.5b will be paid over 36 months in four tranches via buyback, capital reduction, dividend payout, and/or secondary purchase. This move strengthens PHNX's high-quality retail asset portfolio, unlocking long-term value. The transaction is expected to be earnings-accretive from year one, with a significant upside when rental income stabilizes and the 2.71msf incremental FSI potential is developed over the medium term.

 

Valuation and view

* 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, will help to sustain healthy traction in consumption.

* The acquisition of the remaining 49% stake in ISMDPL strengthens its highquality retail asset portfolio, unlocking long-term value. The transaction is expected to be earnings-accretive from year one, with a significant upside when rental income stabilizes and the 2.71msf incremental FSI potential is developed over the medium-term post FY27. Staggered payments over three years takes net debt-to-equity to 0.2x for the FY27 which was expected to net cash earlier.

* We retain our rating to Neutral with a revised TP of INR1,646/share (earlier INR1673/share), implying upside potential of 14%.

 

 

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