Consumption revival to drive growth for Phoenix Mills' stock in medium-term

Capital infusion, lower debt will help execute expansion plan

While there are near-term worries due to the onset of a new coronavirus variant and restrictions for the same, the Street is positive on the medium-term prospects of Mumbai-based real estate major, Phoenix Mills (PML). Multiple rounds of funding, expansion plan, and hopes of a higher consumption growth by the end of the financial year are key triggers for one of India’s largest listed mall operators.

Last month, PML entered into an agreement with global investment fund Canada Pension Plan Investment Board (CPPIB), whereby investors will infuse Rs 1,350 crore for a 49 per cent stake in The Rise, an office-retail project in Lower Parel, Mumbai.

Of this, CPPIB has already invested Rs 780 crore as part of the first tranche. This will be sufficient to fund capital expenditure over the next four years. With this investment, the company has raised or tied up funding of Rs 4,350 crore between the second quarter of 2020-21 and the third quarter of 2021-22, according to ICICI Securities. 

Over the next four years, PML is looking at doubling its retail footprint to 13 million square feet (msf), with 8 msf being part of the CPPIB and GIC portfolio.

Mohit Agrawal of IIFL Research says the company’s ability to bring in global investors like CPPIB and GIC at attractive valuations and establish retail/office platforms offer high visibility on long-term growth.

The other positive is that net debt levels, which were at Rs 4,000-crore levels two years ago, have more than halved to Rs 1,380 crore.

While it is not clear what impact the new Omicron variant will have, consumption in November, according to the company, is back to pre-pandemic levels. Further, rental waivers are being rolled back, with tenants expected to pay full rents by the next quarter. With consumption making a comeback and rental escalations expected, a recovery will reflect on the earnings in 2022-23.

Given the expansion plans, Adhidev Chattopadhyay, equity research analyst, ICICI Securities, expects the company to achieve 14-per cent rental income growth on an annual basis over the 2019-20 (FY20) to 2024-25 (FY25) period. Rental income, which was around Rs 1,000 crore in FY20, is expected to nearly double to Rs 1,950 crore by FY25.