Valuation concerns likely to limit gains for The Phoenix Mills stock

Analysts believe the company's growth trajectory remains intact, but current valuations imply that near-term growth prospects are priced in

From its highs last month, the stock of mall developer and commercial real estate major, The Phoenix Mills is down about 5 per cent. Despite the company’s steady performance in the December quarter, certain brokerages have downgraded the stock, citing concerns regarding its valuation.

From the start of the year, the stock had surged about 30 per cent to its February highs before giving up a third of its gains. It is currently trading at Rs 2,770 a share.

Revenue performance of the company in the December quarter was better than estimates led by the addition of four new malls and an incremental improvement of 4 million square feet. Sales at Rs 986 crore were up 44 per cent over the year ago quarter and 13 per cent on a sequential basis. 

 

Consumption across its malls too saw an increase by 25 per cent year-on-year (Y-o-Y) to Rs 3,300 crore and was boosted by the start of the new malls. On a like-for-like basis, growth was up 5 per cent. The company expects to end the year with a consumption of Rs 11,300 crore to Rs 11,500 crore and anticipates this number to grow at an annual rate of 15 per cent over the next five years. Rental income from the retail segment came in at Rs 448 crore which was 33 per cent more than a year ago while it was up 14 per cent sequentially. Operating profit for this segment was similar to the top line growing at 32 per cent to Rs 435 crore. If new malls are to be excluded, annual rental income and operating profit growth would have been 5 per cent. 

The commercial/ office unit too reported steady growth with income at Rs 50 crore, up 17 per cent Y-o-Y. Margins for the segment at 57 per cent was up 400 basis points Y-o-Y. The company is witnessing robust leasing addition with year-to-date leasing at 0.48 million square feet compared to 0.43 million square feet in FY23. It expects office assets in Hebbal (Bengaluru), Chennai, Wakad (Pune) and Whitefield (Bengaluru) to become operational over the next three years with 1.2–1.8 million square feet of space expected to become operational over the next year. 

Revenue growth

Motilal Oswal Research believes that the rental income for its office portfolio will rise at an annual rate of 57 per cent to Rs 400 crore through FY26. In the hotel segment, the occupancy in St Regis Mumbai and Agra hotels were healthy while room rates increased by 23 per cent and 10 per cent respectively over the year ago quarter. 

The Phoenix Mills delivered strong revenue growth, led by a better-than-expected performance in the retail segment, said Motilal Oswal Research. It has revisited its rental and occupancy assumptions, leading to a marginal increase in FY24 net profit. Pritesh Sheth and Sourabh Gilda of the brokerage say that the company’s growth trajectory remains intact, but the current valuations indicate that near-term growth is priced in.

Earnings trajectory

JM Financial Research, too, emphasised in its report last month that the stock run-up adequately captures the strong earnings trajectory led by best-in-class portfolio, scale up of new retail assets and significant expansion of the office portfolio. Sumit Kumar of the brokerage had downgraded the stock to ‘hold’ from ‘buy’ with a revised target price of Rs 2,510.

Nuvama Research, however, has maintained its bullish stance on it given the company’s leadership in malls and has a revised target price of Rs 2,765 based on a 35 per cent premium to its Q2FY26 estimated net asset value of Rs 2,048.