Phoenix Mills drops 3% as Nomura initiates 'Reduce', sees 11% downside

Phoenix Mills Share Price today: Shares of Phoenix Mills dropped over 3 per cent, logging an intraday low of ₹1,526.60 on Wednesday, after global brokerage firm Nomura initiated coverage with a 'Reduce' rating on the stock, citing concerns around weakening retail consumption. So far this year, Phoenix Mills shares have struggled to trade in the green territory, experiencing a decline of 3.7 per cent.

 

Nomura has set a target price of ₹1,400, implying a downside of over 11 per cent from the current market price of around ₹1,575. At 9:27 AM, Phoenix Mills shares were trading at ₹1,521.00, down by 3.41 per cent on the National Stock Exchange.   FOLLOW STOCK MARKET UPDATES TODAY LIVE 

Retail consumption drag

Phoenix Mills is a prominent mixed-use developer in India, operating a well-diversified revenue mix, encompassing four major segments: retail malls, commercial offices, hotels, and residential developments.  

According to Nomura, however, Phoenix Mills' retail consumption is expected to grow at a single-digit compound annual growth rate (CAGR) of 9 per cent over FY25–27F. Within this, consumption from mature malls is projected to grow at just 3 -4 per cent CAGR, while the remaining newer malls, which contribute 35 per cent of total consumption, are expected to witness a much stronger CAGR of 18 per cent, benefiting from a low base and ongoing ramp-up. 

At present, Phoenix Mills operates 12 retail malls, collectively managing an operational area of approximately 11.5 million square feet.

 

While Phoenix Mills is actively taking steps to drive overall consumption by churning tenants and replacing older and underperforming formats with more relevant, high-performing brands, these measures might take some time to play out. "We think the benefits of this strategy will take some time to reflect...Two new malls (Surat, Kolkata) are expected only in FY28, we expect ramp-up benefit only from FY29F, and expect a consumption CAGR of 11 per cent over FY25-30F," Nomura stated in its report.  ALSO READ | Delhivery rises 2% as MOFSL initiates coverage with 'Buy'; 18% upside eyed 

Valuation Concerns

 

Another concern for Nomura was expectations of margins coming under pressure. For instance, Phoenix Mills' Ebitda was estimated to grow at 43 per cent per year from FY22 to FY25. However, the current consumption woes have lowered the prospects of strong margins, the brokerage pointed out.

 

"The stock's valuation at 24x FY26F EV/Ebitda (vs less than 20x pre-Covid) appears expensive to us, while we expect consolidated Ebitda CAGR at a slower 13 per cent/14 per cent over the next 2/5 years," the brokerage firm said.

 

Profit margins from its retail business might witness a similar trajectory. The retail Ebitda margin dropped from 75 per cent in FY23 to 71 per cent in FY25 and it's expected to decline further, as per the brokerage firm. This is primarily owing to tenant churns and expansion in tier-2 cities. 

As compared to tier-1 cities, profitability prospects are lower in the tier-2 segment.  "Retail Ebitda margin for malls in cities such as Indore/Ahmedabad were at 55-60 per cent in FY25 (vs margins for malls in largely Tier-1 cities at +70-84 per cent), despite reaching +90 per cent occupancy towards end-FY25," Nomura said.