Maintain BUY on Phoenix Mills - Gradual recovery to normalcy - HDFC Securities

Mr. Parikshit D Kandpal, Institutional Research Analyst, HDFC Securities

Phoenix Mills (PHNX) reported revenue at Rs 2.1bn, -48%/+60% YoY/QoQ and 15% ahead of our estimate. However, lower-than-expected EBITDA margin and higher interest costs led to loss of Rs 359mn (vs estimated loss of Rs 137mn). All the retail assets have been operating since the end of the quarter. While consumption had reached to 40-55% across major malls in 2QFY21, it reached to 85% of pre-COVID level during the first week of November-20, aided by longer operational hours, opening of F&B section and festive season. Revenue from commercial was at 94% of 2QFY20. Residential segment also posted strong recovery with sales of Rs 447mn. On the back of QIP in August, net debt reduced to Rs 34bn from Rs 43bn on Mar 20-end with net D/E at 0.72x (vs 1.15x at the end of FY20). Despite the near term challenges, we maintain BUY on PHNX given its strong positioning and healthy balance sheet. We tweak our FY21/22/23 estimates and raise TP to Rs 841/sh (vs Rs 828/sh earlier).

Consumption recovery playing out : PHNX registered QoQ growth of 60% in revenue as consumption reached 40-45% of pre-COVID level. Revenue from retail segment reached 45% of 2QFY20. The company has concluded renegotiation with 90% of the retailers and has provided discount on minimum guarantee (MG) rent with 150-200bps higher revenue share till Mar-21 or till consumption increases to 80% of pre-COVID, whichever is earlier. The increased revenue share will continue for short period of time after Mar-21 for some of the retailers, allowing PHNX to claw-back a part of the discount extended to retailers. Management expects retail income at 50% of FY20 level vs 45% guidance earlier.

Balance sheet remains stable with strong liquidity: Consolidated net debt decreased to Rs 34bn from Rs 43bn on Mar-20, on the back of QIP done in August-20. Average cost of borrowing reduced to 8.9% from 9.14% in 1QFY21 and is likely to decrease further by FY21-end. Despite the challenges, PHNX generated positive operating cash flow of Rs 963mn during 1HFY21. Management expects all the retail assets to be able to service their debt from Nov-20, without any support from the parent. Of the Rs 15bn balance capex for four upcoming malls, Rs 1.8bn would be incurred in 2HFY21 and remaining would be spend over FY22-23. All the four malls are expected to be operational by early FY24, which could boost earnings.

Shares of The Phoenix Mills Ltd was last trading in BSE at Rs.630.9 as compared to the previous close of Rs. 613.35. The total number of shares traded during the day was 17197 in over 1856 trades.

The stock hit an intraday high of Rs. 636.65 and intraday low of 609. The net turnover during the day was Rs. 10809438.

Source : Equity Bulls

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