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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