Consumption trends signal strong FY23 for mall operator Phoenix Mills

Company's recovery and expansion after impact of Covid-19 expected to improve rentals and occupancies

Phoenix Mills, the country’s largest listed mall operator, continues to benefit from consumption growth and demand across its commercial, residential, and hospitality properties.

After a record July aided by end-of-season sales, Phoenix Mills said consumption at its eight malls was Rs 740 crore in August. That is a 125 per cent rise from August 2019 and at pre-pandemic levels. Excluding Phoenix Palassio, the Lucknow mall that started operations in July 2020, the company’s like-to-like growth over a three-year period is up 114 per cent to Rs 670 crore. However, from the record consumption in July, there was a 7 per cent month-on-month drop.

Consumption at Phoenix’s properties is increasing since the start of the year, when it stood at 70 per cent (of levels before Covid-19) due to the Omicron wave. Since then the recovery has taken hold, with the company ending Q4 FY22 at 91 per cent of levels three years ago. The growth has continued into the June quarter (Q1'FY23) with consumption at 111 per cent of Q1'FY20 levels.

The higher consumption and growth show in rentals. Income from rentals and collections are up 13 per cent and 17 per cent, respectively, in June quarter (Q1 FY23) compared to pre-Covid levels. The company reported rental collections of Rs 530 crore in the June quarter. Like-for-like and adjusted for Palassio, annualised rental collections are 17 per cent above pre-Covid level of Rs 1,800 crore in FY20.

Leasing occupancy at Phoenix’s malls is at 95 per cent while trading occupancy is at 85 per cent given that multiple stores are in the fit-out stage. The occupancy figures indicate robust demand for existing and under-construction projects. With a fifth of the leasing space up for renewal in FY23, rentals are expected to go up, according to IIFL Research.

The company’s hospitality segment has improved in occupancies and average room rates (ARR). Occupancy at the St Regis hotel in Mumbai improved by 500 basis points month-on-month to 86 per cent, while ARRs were up 6.5 per cent month-on-month to Rs 9,547. Leasing activity at the commercial business remains robust with year-to-date leasing at 0.19 million square feet with 70 per cent of the leases being new while the rest was renewals. On the residential front, the company had sales of about Rs 42 crore in the September quarter till date.

Given the consumption strength, ICICI Securities expected FY23 rental income of Rs 1,370 crore. With Indore and Ahmedabad malls opening in FY23 and Pune (Wakad) and Bengaluru (Hebbal) in FY24, the brokerage’s Adhidev Chattopadhyay expected a 17 per cent annual rental income growth over the FY20-25 period. The company’s operational mall space by FY26 is expected to be over 13 million square feet, compared to 6.9 million square feet now.

Most brokerages have a buy rating, given the triggers across Phoenix's business arms. Edelweiss Research expected the revival of consumption at malls and occupancy at hotels, and liquidation of ready inventory in the housing segment to culminate in robust cash flows going ahead. The stock is up 26 per cent over the last three months and target prices range from Rs 1,350-Rs 1650 a share. Investors can consider the stock currently trading at Rs 1,418 a share on dips.