The Phoenix Mills (PHNX) reported a strong like-to-like (LTL) consumption of 111% of March 2019 levels in March 2023 (March 2020 was the first Covid-impacted month and not comparable). However, the LTL consumption in March 2023 was slightly lower at 106% of March 2022 levels. The company projected a range of 13-14% LTL consumption for FY23, adjusted for mall closures in March 2020. With a high base for FY23, analysts model a 5% LTL consumption/rental CAGR from FY24E. Analysts anticipate a rental income of Rs 13.4 bn for FY23E. With the opening of malls in Indore and Ahmedabad in Dec’22/ Feb’23, and in Pune (Wakad) and Bengaluru (Hebbal) in H1FY24, analysts expect a 17% rental income CAGR over FY20-25E. We retain our BUY rating with an unchanged TP of Rs 1,645/share which factors in the new Surat mall/Kolkata residential project and retain our 20% premium to Mar’23E NAV of Rs 1,371/ share considering opportunities from office capex and new malls. Key risks are fresh Covid waves impacting consumption and fall in mall occupancies and rentals.

While the consumption base for FY23E has seen a onetime reset in consumption/rentals along expected lines at 13-14% over pre-Covid levels, we model for 5% LTL rental CAGR from FY24E and new malls becoming operational should drive rental growth along with increase in area at High Street Phoenix asset over FY24-25E. For FY23, the company has reported overall rental collections of Rs 21.6bn which would imply pure rental income of over Rs 13bn for FY23.

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We have assumed commencement of construction of the new 1.0msf Surat mall in FY24 and completion in H2FY27 with initial rentals to be Rs 140/psf/month. We expect the Surat mall to contribute Rs 1.6bn annual gross rental income FY28 onwards at over 90% occupancy which implies a 13.2% gross rental yield on invested capital of Rs 12.5bn in first full year of stabilised mall operations.

PHNX will have 14msf operational mall space by FY27. We expect PHNX to achieve a 17% rental income CAGR over FY20-25E, resulting in Rs 22.4bn of rental income in FY25E vs Rs 10.3bn in FY20. Of the Rs 22.4bn of gross rental income in FY25E, PHNX’s share is 77% or Rs 17.3bn.