The Phoenix Mills Rating: buy- Consumption revived in Q3FY21

The Phoenix Mills (PHNX) has informed exchanges that Q3FY21 mall consumption of Rs 13.7 bn was at 66% of previous year levels and up 192% q-o-q. Consumption in Dec-20 was ~Rs 5 bn and at the same level as Nov-20 and at 70% of Dec-19 levels. Retail rental collections (including CAMs) in Q3FY21 were also healthy at Rs 2.6 bn (Rs 3.9 bn for 9MFY21).

With higher than expected consumption across malls, we now expect a lower like-to-like FY21e rental income loss of 45% vs. 50% earlier. We expect consumption to stabilise heading into FY22e resulting in PHNX being able to revert to 90% minimum guarantee rentals from Q1FY22. We have built in a strong recovery with FY22e rental income of Rs 11.4 bn vs. Rs 10.2 bn in FY20. We retain our Buy rating with a revised Mar-22 SoTP based TP of Rs 925/share (earlier Rs 804) assuming lower cap rate of 7% (8% earlier).

Festive season sees surge in consumption: While Q2FY21 mall consumption was at 40-55% of previous year levels, Q3FY21 consumption of Rs 13.7 bn was at 66% of previous year levels. Consumption in Dec-20 was at 70% of Dec-19 levels, driven by increase in mall operating hours, resumption of F&B and gaming zones/multiplexes.

Estimated rental income CAGR of 14% over FY20-25e: At a portfolio level, PHNX will have ~11msf operational mall space by FY23-24e (6.9msf currently operational). After accounting for COVID-19 induced revenue loss of Rs 4.5 bn in FY21, we expect PHNX to achieve a 14% rental income CAGR (ex-CAM) at a portfolio level over FY20-25E which may result in PHNX clocking Rs 19.5 bn of rental income in FY25E vs. ~Rs 10 bn in FY20.

Potential fund infusion may usher in growth: The company has recently signed a non-binding term sheet with GIC Private Equity (PE) for the formation of a retail-led mixed-use platform. The assets include PHNX’s Mumbai (Kurla) and Pune malls and Mumbai (Kurla) offices having a total leasable area of 3.36msf. The indicative pre-money EV for these assets is Rs 56-57 bn or an equity value of Rs 40-41 bn (debt of Rs 16 bn as of Mar-20). Subject to the deal going through, GIC PE may invest between Rs 10-13 bn in PHNX’s SPVs which may further strengthen PHNX’s balance sheet as it has estimated cash reserves of Rs 16 bn as of Dec-20.