The Phoenix Mills Limited Q3 FY23 Earnings Conference Call Insights

Key highlights from The Phoenix Mills Limited (PHOENIXLTD) Q3 FY23 Earnings Concall

Management Update:

• [00:01:47] PHOENIXLTD said 3Q23 saw a 28% increase in consumption over 3Q20 to INR2,647 crore, making it the best year on record.

• [00:02:18] Some of the key categories that performed well for PHOENIXLTD vs. 3Q20 were jewelry up 142%, electronics up 21%, fashion and accessories up 26%, food and beverage up 31%, and FEC, multiplex and entertainment up 30%.

• [00:05:44] PHOENIXLTD said Citadel’s trading occupancy is currently 50%, up from 42% in December, and is on track to reach 85% by March 2023.

• [00:13:55] PHOENIXLTD expects to close the acquisition of a very prime 5.5 acre land parcel in Alipore, Kolkata for a consideration of INR430 crores.

Q&A Highlights:

• [00:19:35] Puneet Gulati from HSBC asked about the performance of two malls, Kurla and Chennai, that are currently underperforming compared to other malls. Varun Parwal Deputy CFO said the company has seen a recovery in Kurla’s Jan. consumption due to the brand mix, new stores, and spike events. Additionally, PHOENIXLTD has phased out some non-performing retailers in Chennai and opened up new stores that are having a positive impact on consumption.

• [00:23:29] Puneet Gulati at HSBC also enquired is there reasonable certainty that the Pune and Bangalore malls will start in 1Q, and how soon should they reach 90% trading occupancy. Varun Parwal Deputy CFO replied that occupancy rates for Indore have increased from 42% to 50%, and is expected to reach 85% by March 2023. The retention money held back for the mall is INR48 crores and the monthly spending run rate for Pune and Hebbal combined is expected to be INR60 crores a month. This would lead to an expenditure of INR250-300 crores, leaving about INR100-120 crores in balance.

• [00:28:00] Pritesh Sheth from Motilal Oswal asked that on the retail rental income for 3Q, while consumption growth was about 25%, 26% QonQ, but retail rental growths were 7%. Varun Parwal Deputy CFO answered that the company has been growing at a CAGR of 15-16%, and the revenue share is between 12-15%. In 3Q23, jewelry sales were higher than in other quarters and categories due to festive season. There is nothing to read into this, and PHOENIXLTD’s guidance remains intact.

• [00:30:24] Pritesh Sheth with Motilal Oswal asked what is the timeline for full occupancy of Fountainhead Tower 3 and pre-leasing of the Bangalore Asia offices in 1H24. Shishir Shrivastava MD said that the company expects 90% occupancy of Fountainhead Towers 2 and 3 by the end of FY24, with 50% occupancy at Tower 3 by July-August. PHOENIXLTD anticipate OC at Bangalore Asia Towers in June-July, with 3.5 million sq. ft. of visibility.

• [00:34:04] Kunal Lakhan of CLSA queried if retailers are experiencing pressure due to extended end of season sales, and are there any segments that are feeling more pressure than others. Shishir Shrivastava MD answered that the impact of shortening the end of season sales period has not been negative. In fact, demand has continued to be sustained due to innovative marketing. The end of season sales period has shortened from 10th Dec. to 14th of Feb. to 20th of Dec. to 30th of Jan. And There is no evidence of a slowdown in distribution and consumption side.

• [00:36:48] Kunal Lakhan of CLSA enquired that PHOENIXLTD is a mall developer and operator, but now incrementally a lot of capital is getting deployed into newer business segments. Shishir Shrivastava MD clarified that the stated strategy for PHOENIXLTD residential development is to look for opportunities in mature locations which are usually value accretive, such as the One Bangalore West and the Alipore land parcel. The company is also looking for marquee projects in iconic residential developments in mature markets, while continuing to focus on the key markets identified in the past.

• [00:40:49] Kunal Lakhan of CLSA asked about warehousing and the strategy there in the long run and the capital deployment outlook. Shishir Shrivastava MD answered that the company is looking to invest INR300-350 crore in warehousing space for its retailers, and may bring in a financial partner later on to expand the business.

• [00:42:29] Mohit Agrawal with IIFL asked about the company’s footfalls across the malls and if it has recovered. Shishir Shrivastava MD replied that in 3Q23 PHOENIXLTD should be close to about 100%. And in some locations, it may be even be higher like Bangalore about at 115%.

• [00:44:45] Mohit Agrawal with IIFL also asked which segments lagging earlier have recovered and which segments are doing good in terms of footfalls across malls. Shishir Shrivastava MD said that family entertainment centers and multiplexes have seen a 30% growth in 3Q23 vs. 3Q20, which is expected to grow further in the coming quarter. Supermarkets and hypermarkets have seen a de-growth, but is only 1% of rental business.

• [00:46:18] Mohit Agrawal with IIFL asked about the GIC platform progress. Shishir Shrivastava MD answered that the GIC JV platform is on track and there are plans for expansion in both Mumbai and Pune. The company is actively looking for opportunities to add another mall to the JV in the next quarter or so. As for REITs, it’s a wait and watch of the performance before deciding as to whether it would be value accretive for PHOENIXLTD.

• [00:48:39] Parikshit Kandpal from HDFC Securities asked about the contribution from the revenue share in 3Q23. Shishir Shrivastava MD answered that the approximate percentage of rental income as a percentage of consumption is 12.5-12.6%. The incremental revenue share over and above the minimum guaranteed rental would be in the range of 12-13%.

• [00:51:00] Niket Shah from Motilal Oswal enquired about company’s plans with the massive cash flow generation going forward. Anuraag Srivastava Group CFO replied that PHOENIXLTD plans to spend approx. INR5,500 crore on existing expansions and new malls. It also plans to acquire 1-2 land parcels each year, costing about INR1,000 crores. The majority of the cash will be spent on retail, with the rest going towards other projects.

• [00:52:57] Vasudev Ganatra from Nuvama asked what kind of rents are expected from Bangalore and Pune malls once operational. Varun Parwal Deputy CFO said that PHOENIXLTD expects average rentals from Bangalore mall to range from INR150-160, resulting in an annual rental income of about INR180 crores when fully leased and at 90% trading occupancy. For Wakad Pune, the annual rental income is expected of INR140-150 crores when fully leased and at 90% trading occupancy.

• [00:53:51] Vasudev Ganatra from Nuvama asked about total collection for 3Q23, all assets combined. Varun Parwal Deputy CFO answered that in total, collections from operations for 3Q23 amount to INR850 crores and for nine months it is INR2,300 crores.