Mr. Parikshit D Kandpal, CFA, HDFC Securities and Chintan Parikh, Institutional Research Analyst, HDFC Securities

Phoenix Mills (PHNX) reported a strong recovery, with consumption reaching 90% of 4QFY20 on a comparable basis. Rental income from businesses during the year was 55% of FY20, better than forecast by 45-50%. The hotel business also experienced a strong recovery as it benefited from social events and the trend of stays. The residential segment continued to recover with sales of INR 630 min. However, the lockdown that followed Wave 2 delayed the recovery. Despite the near-term challenges, PHNX is on track to meet its target of 12 msf retail and 6 msf GLA trade by FY24 and will look to add 1 msf each year. We remain positive on PHNX, given the high liquidity and reiterate BUY with a reduced target price of 973 / sh INR. We have adjusted our FY22 / FY23 EPS estimates by -44 / + 1% to account for the impact of the second wave.

Financial highlights: Turnover: INR 3.8 billion (-3.4 / + 14.2% YoY / QoQ, 5% miss). EBITDA: INR 1.7 billion (-15 / + 9% YoY / QoQ, 13% failure). EBITDA margin: 44.9% (- 623 / -206 bps YoY / QoQ, vs 49.1% est.). Other income of INR 496 million includes a one-time gain of INR 251 million on asset sale. Taking this into account, the other income amounts to INR 245mn (2.4x 4QFY21, + 62% QoQ). RPAT: INR 655mn (+ 40% year-on-year, flat QoQ). APAT: INR 466mn (flat year-on-year, -29% QoQ, 27% failure).

Relief for retailers must be as expected in the first lockdown: While consumption / footfall hit 100/83% of 4QFY20, the closure of malls after the second wave led to the recovery. At constant scope, the consumption recovery is 90%. Rental income from shops reached 55% of FY20 for the year, higher than forecast by 45-50%. Given the uncertainty, PHNX has yet to negotiate with retailers, but expects conditions to be similar to those extended during the first lockdown.

Risk reduction in construction finance: Consolidated net debt reduced to INR 38.7 billion from INR 42.7 billion at the end of March 20. To reduce reliance on construction finance, PHNX and CPPIB would inject more than INR 8 billion (INR 4 billion each) into ISML, which owns assets under construction in Pune, Bengaluru and Indore. In a separate transaction, CPPIB would invest INR 3.8 billion in Mindstone (Kolkata shopping center) for a 49% stake in the subsidiary. PHNX is also looking to develop the Rise project in Worli, Mumbai, at a cost of approximately INR 11 billion.

Shares of The Phoenix Mills Ltd were last trading in BSE at Rs. 787.35 from the previous close of Rs. 790.55. The total number of shares traded during the day was 2,975 in more than 419 trades.

The action hit an intraday high of Rs. 814.85 and an intraday low of 785.5. The net turnover during the day was Rs. 2,353,441.

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