The Phoenix Mills Limited (PHOENIXLTD) Q2 FY23 Earnings Concall Transcript

The Phoenix Mills Limited  (NSE:PHOENIXLTD) Q2 FY23 Earnings Concall dated Nov. 09, 2022

Corporate participants:

Shishir Ashok Shrivastava — Managing Director

Anuraag Srivastava — Chief Financial Officer

Varun Jagdish Parwal — Deputy Chief Financial Officer & Head of Finance & Accounts – Non-Retail Businesses

Analysts:

Puneet Gulati — HSBC — Analyst

Parikshit Kandpal — HDFC Securities — Analyst

Kunal Lakhan — CLSA — Analyst

Biplab Debbarma — Antique Stockbroking — Analyst

Girish Choudhary — Spark Capital — Analyst

Ashwani Kumar Agarala — Edelweiss Mutual Fund — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Q2 and H1 FY ’23 Results Call of the Phoenix Mills Limited. [Operator Instructions] Management of the company is being represented by Mr. Shishir Shrivastava, Managing Director; Mr. Anuraag Srivastava, Group CFO; and Mr. Varun Parwal, Deputy CFO. [Operator Instructions] Please note that this conference is being recorded. At this time, I would like to hand over the conference to Mr. Shishir Shrivastava. Thank you, and over to you, sir.

Shishir Ashok Shrivastava — Managing Director

A very good afternoon, ladies and gentlemen. We take pleasure in welcoming you all to discuss the operating and financial performance of the second quarter and first half of financial year ’23. We have uploaded the results presentation on the stock exchanges as well as on our website, and I hope you’ve had a chance to take a look at the same. We will now take you through the key highlights of the results, and we will refer to the relevant slides of the results presentation for your convenience. We have also drawn comparison with the financial year 2020 for Q2 and H1, which year was historically our best-performing year for retail. And I will now start with the performance for our retail portfolio. May I draw your attention to slide number four onwards of the results presentation. Consumption in Q2 FY ’23 stood at INR2,199 crores, showing a growth of 30% over Q2 FY ’20. If we were to exclude Phoenix Palassio, Lucknow, the contribution from that asset, the growth was at 18%. Led by the festive season and new brand launches, this was the highest quarterly consumption by the malls in the second quarter of any financial year.

Consumption was robust across categories in the second quarter. Some of the top-performing categories were jewelry, where consumption was up 132% from Q2 FY ’20; electronics, which was up 35% from Q2 FY ’20; fashion and accessories, up 33%; food and beverage, up 33%; and multiplex, up 15% from Q2 FY ’20. Moving on to slide number five. Consumption in the first half of FY ’23 stood at INR4,389 crores up 26% compared to the first half of FY ’20. For a like-to-like comparison, if we exclude Phoenix Palassio’s contribution, which was not operational during the relevant H1 FY ’20, the growth in consumption stood at 14%. Gross retail collections for the first half of FY ’23 stood at INR1,045 crores, which was up 24% from the first half FY ’20, maintaining the quarterly run rate of a little over INR500 crores per quarter. Moving on to slide six and seven and to give you some color on our performance in the month of October. October has been a great month for us. Consumption came in at INR977 crores, the highest level historically. It was up 33% compared to October 2019 and 44% up compared to October 2021.

Year-to-date, April to October ’22, we achieved consumption of approximately INR5,300 crores and are on track to target annual consumption of at least INR9,000 crore without counting any bump-up on account of new trading area becoming operational inside our existing malls at Chennai, Pune and Kurla and without counting the bump-up on account of sustained consumption growth in our existing malls and any consumption from the new malls opening at Indore and Ahmedabad in the next few months. We continue to make each mall the de facto destination for customers. Besides bringing in the best of brands and categories and fine dining, food and beverage experiences, we continue to host performances, events of prominent artists and invest in innovative eye-catching decor across our properties. On slide 10, you can see the retail expansion that we have planned for our flagship property, Phoenix Palladium Mumbai. To recap, the malls gross leasable area was about seven lakh 70,000 square feet in FY ’22. During the first half of this year, we have operationalized additional GLA of about 150,000 square feet spread across the lower ground floor at Palladium, Courtyard and the second and third floors in the East Zone.

In addition, we will have another 250,000 square feet of anchor area coming up opposite to the PVR block in 2024 and another 200,000 square feet of retail GLA as part of the new expansion project Rise, which is the million-plus square feet of offices and 200,000 square feet of retail. Once the entire expansion program is completed in 2025, Phoenix Palladium will be a 1.43 million square foot GLA mall, the largest in our portfolio. Please refer to slides 11 through 13 for a quick glimpse on the new store openings at Phoenix Palladium across categories of fashion, F&B and entertainment. In September ’22, we opened the first Victoria’s Secret store in India. We also have the biggest Starbucks in India at our mall spread across two levels, the flagship store of Swarovski and several new brands in the F&B space. If I may draw your attention to slide 14 onwards for an update on our upcoming malls. We have two new mall openings in the coming months. Phoenix Citadel Indore is slated to open its doors to the city in December of this year and followed by Phoenix Palladium Ahmedabad in January 2023.

The GLA of Phoenix Citadel Indore stands at approximately one million square feet; and Palladium Ahmedabad, at approximately 775,000 square feet. Citadel is approximately 88% leased as on date. Palladium Ahmedabad stands at 99% leasing occupancy. These two malls will soon be followed by the launch of Phoenix Mall of Asia at Bangalore and Phoenix Mall of the Millennium at Pune in the first half of FY ’24. Phoenix Mall of Asia, Bangalore has a retail GLA of approximately 1.2 million square feet. And currently, we have achieved about 78% leasing occupancy. Phoenix Mall of the Millennium has retail GLA for approximately 1.1 million square feet, and current leasing occupancy stands at 86%. slides 15 through 18 give you a quick look at Phoenix Citadel Indore as we get ready to launch this mall in the next month to the city of Indore. Our retail project in Kolkata, where we received the consent to establish in July ’22, we have commenced the construction work.

Demolition for on-site structures has been completed, and construction has commenced. At project Rise at Lower Parel Mumbai, we commenced excavation in October this year.Now moving on to the performance of our retail portfolio on slide number 29. In line with consumption, our rental and EBITDA growth has also come across strong. Retail rental income was at INR313 crores, up 21% compared to Q2 FY ’20. Retail EBITDA for this quarter was at INR318 crores, up 29% compared to Q2 FY ’20. In the first half of FY ’23, our annual rental income stood at INR636 crore, demonstrating a growth of 22% over first half FY ’20. And retail EBITDA stood at INR643 crores, showing a growth of 28% for the same period. May I now request Anuraag to take you through the office, hotel and residential sections and the overall financial results.

Anuraag Srivastava — Chief Financial Officer

Thank you, Shishir. Good afternoon, everyone. I would draw your attention to slide 34 for an update on our commercial portfolio. Our commercial office portfolio continues to demonstrate our strong leasing traction. For the period of April to October ’22, we saw a gross leasing of about two lakh square feet, out of which 1.3 is new leasing and about 700,000 is renewals. Total office income in quarter two FY ’23 stood at about INR43 crores, which is up 3% year-on-year, and total EBITDA stood at INR25 crores. Collection efficiency for the quarter was at about 95%, and we collected about INR43 crores over here. During first half of FY ’23, office income stood at INR84 crores, up 7% year-on-year, and EBITDA at INR48 crores, collection efficiency at 97% and a collection of about INR89 crores for H1. For the hotels, please refer to slide 38 to 40. At both our hotels, we have witnessed strong improvement on account of social and corporate events, pickup in food and beverage and the festive season, which has led to the higher occupancies and the ARRs. At our flagship property at St.

Regis during October ’22, our ARR stood at INR14,154 and RevPAR at INR11,198, showing significant improvement over same period last year. Our operating performance at St. Regis, Mumbai has surpassed most our parameters in last six months led by resumption of foreign travel, domestic corporate travel, social events and staycations. These factors provide an excellent visibility for high occupancy and ARR in the coming months. Additionally, we have made operational new luxury banqueting venues on the 38th floor of the hotel, which has started generating revenues from September and will further boost our hotel income in the next six months. Our total income stood at INR84 crores, up 23% over quarter two FY ’20. Occupancy, at 84%, up from 77% in quarter two FY ’20, and ARR was at INR11,840, up 8% from quarter two FY ’20. Operating EBITDA came in at INR35 crores, which is 46% growth compared to quarter two FY ’20. At our Courtyard Marriott property in Agra, total income is INR nine crores, up 32% quarter two FY ’20; occupancy at, 63%; and ARR at INR3,883, which is up 17% from the quarter two FY ’20.

During the month of October, Courtyard Marriott’s occupancy levels reached 80%. ARR and RevPAR also showed significant improvement and was at INR4,623 and INR3,790, respectively. Moving on to our residential business, which is on slide 45. We have witnessed very good traction in residential sales mainly led by the robust demand of ready to move in inventory. We achieved an overall sale of INR98 crores in quarter two FY ’23, out of which INR26 crores is pending registration. Momentum in sales continued with sales in excess of INR200 crores in the period from April to October ’22. Collection in quarter was INR71 crores and for the first half was about INR124 crores. Moving on to our financial results, which are in slides 47 to 53. Income from operations for the quarter was INR651 crores. This is up 75% year-on-year and 57% if we compare to quarter two of FY ’20. Income from operations, at INR1,226 crores for first half FY ’23, up 113% year-on-year and 19% if we compare it to H1 of FY ’20.

Moving to profitability and EBITDA, for quarter two FY ’23 was INR381 crores, up 104% year-on-year and 81% compared to quarter two FY ’20. EBITDA at INR700 crores for H1 FY ’23, up 168% for the year — for year-on-year and up 40% compared to H1 FY ’20. PAT after minority interest and before comprehensive income for quarter two FY ’20 was at INR186 crores compared to INR60 crores of quarter two FY ’22 and INR66 crores as well for quarter two FY ’20. INR905 crores was the PAT for first half FY ’23 compared to INR33 crores for H1 FY ’22 and INR196 crores for H1 FY ’20. On slide 53, we have demonstrated growth in consolidated EBITDA on a like-to-like basis to the pre-COVID period. We have made adjustments for the newly opened Phoenix Palassio Mall, which was not there last year; Classic Mall, again, which was an asset and we have acquired this year. And residential business, because it has a lumpy effect on accounting, we have removed that as well. Moving out these adjustments, we have still registered a growth of 33% over quarter two FY ’20 and 27% over H1 FY ’20. Moving on to the debt cash flows and liquidity positions, which are in slide 54 to 59.

Our gross collections from the business was INR726 crores for the quarter, out of which retail was INR520 crores, commercial was INR43 crores, residential was INR71 crores, and hotel business collected about INR93 crores. We spent about INR570 crores in capex during the first half of FY ’23. We have four malls under construction at present. And since they are entering into final phase of completion, the spending has picked up, and the capex has increased. Further, we have started excavation for project Rise and Lower and our upcoming mall in Kolkata during this quarter. We have commenced construction on the RCC structure for the Millennium Towers and the Asia Towers. These are the office towers on top of the malls in Pune and Bangalore, respectively. On the debt side, on slide 54, consolidated gross debt stood at INR4,263 crores on 30th September with an increase of INR76 crores from the INR487 crores, which was the balance as on 30th June ’22.

On the operational portfolio, there has been a decline in the debt due to gradual repayments as well as few planned repayments that we have done during the quarter.On the under construction portfolio, sequential increase of debt is on account of spending for our under construction mall at Ahmedabad, Indore and Bangalore. However, we expect 80% of this debt to be refinanced to LRDs with Indore and Ahmedabad malls becoming operational in the coming few months. Average cost of borrowing is up is up by 44 basis points to 7.89% in September ’22.This figure was 7.45% in June ’22. Currently, our lowest cost of borrowing stands at 7.35%. Despite RBI increasing rates by 140 bps since May ’22, our borrowing costs have gone up by 44 bps so far only.

As our overall interest rates and the economy starts to rise, our effort will be to minimize the impact of this on our cost of borrowings by reducing the spread charged by the banks on top of the repo rate. Our liquidity position is on slide 56. As of 30th September 2022, we were — we have almost liquidity of INR2,300 crores. This excludes INR1,022 crores in unutilized OD accounts. At a group level, our net debt stood at INR1,964 crores, and PML shares of net debt is INR1,573 crores. Moving to our cash flow positions on slide 57 and 58. We had a strong operational cash flow quarter. We generated INR398 crores of operating cash flow. Post interest payout of INR81 crores, our operating free cash flow for the quarter was INR318 crores. We are bullish on our business prospects. And with a strong balance sheet position, our focus is now to deliver our under construction projects in time and judiciously deploy our capital to expand our portfolio.

With this, we would close our opening remarks, and we will open the call for an interactive question-and-answer question. Thank you.

Questions and Answers:

Operator

[Operator Instructions] The first question is from the line of Puneet Gulati from HSBC. Please go-ahead.

Puneet Gulati — HSBC — Analyst

Yeah, hi good afternoon and Congratulations on good numbers. My first question is with respect to the consumption growth. You talk about adjusted consumption growth of 118% over FY ’20. In your assessment, is it good enough? And if not, how much higher can you receive — can you achieve by end of FY ’23?

Shishir Ashok Shrivastava — Managing Director

Puneet, thank you for your question. See, when we look at the significant changes that we are seeing across all our malls in terms of change in brand mix, in terms of — if I may draw your attention to where we have detailed the trading occupancy malls, I think the answers you will find in that, that see the trading occupancy — leasing — there’s a gap between the leasing occupancy and the trading occupancy. So we expect, as all of these malls move closer to 97%, 98% operation trading occupancy, which is where they currently stand at being leased, consumption is certainly going to get further improved on that account. And of course, I think there is — the trend that we are seeing is that the average spend per customer is — continues to keep growing. So these are — our estimate is that we should certainly continue to see even in the remaining half of FY ’23 when we compare it with FY ’20, we should continue to see high teens growth for the remaining half as well.

Puneet Gulati — HSBC — Analyst

If it were to be — if your trading occupancy were to be same as leasing occupancy, where do you think this number would have been, 18% now?

Shishir Ashok Shrivastava — Managing Director

I think that would impact another 7% to 8% more — higher. So 18% like-to-like growth excluding adjusted for Phoenix Palassio would probably be closer to about 24%, 25% or slightly higher than that.

Puneet Gulati — HSBC — Analyst

Understood. That’s helpful. And has the footfall returned back to pre-COVID levels? Or is that still below pre-COVID?

Shishir Ashok Shrivastava — Managing Director

So I would say it would still be about 15% lower, but the — but we are seeing very positive response to the larger marketing initiatives that we have undertaken in terms of the concerts and performances. That footfall is back. And on those days, of course, that does boost our consumption significantly.

Puneet Gulati — HSBC — Analyst

Right. That’s helpful. My second question is with respect to the leasing of the upcoming malls. Indore is leased out to up to 88%. While it’s still a good number, do you think that’s where it will settle at in the near future given that Ahmedabad is already much higher than 95% and some of the other malls are — which are still a year away, are leased out higher than 88%?

Shishir Ashok Shrivastava — Managing Director

See, when we launched Lucknow, in July 2020, the mall was pre-leased at about 72% or 73% at that stage. So there is certainly a build-out that happens over a 12-month period after the mall or commences operations. And we have strategically retained some of the high-yielding in-line spaces to lease out later. So it’s a strategic decision at Indore. And we are confident that this mall is going to be trading at close to the mid-90s or high 90s, like any other mall, but it takes about 12 to 14 months to ramp up with that line.

Puneet Gulati — HSBC — Analyst

And in terms of the underlying rentals, if you can give some sense of where the average underlying rent is likely to be for all the four upcoming malls?

Shishir Ashok Shrivastava — Managing Director

Ahmedabad, we expect to be approximately in the range of about 140. Indore should be in the range of 90 to 100, in that range, because there’s also the revenue share component which will take that up. Mall of Asia in Bangalore should be closer to about 155, 160. And Mall of the Millennium at Pune, in the range of 120 to 130.

Puneet Gulati — HSBC — Analyst

That’s correct that’s super that’s all from my side thank you and all the best.

Operator

We’ll take our next question from the line of Parikshit Kandpal from HDFC Securities. Please go-ahead.

Parikshit Kandpal — HDFC Securities — Analyst

Thank you Congratulations on a great quarter. My first question is on business development. So we have been talking about business development every quarter, but we have not seen any significant movement there. even announced a couple of quarters, in three quarters’ plan, there’s not been any movement. So if you can update us across cities what has been the BD action. And in this financial year, do you expect any closures?

Shishir Ashok Shrivastava — Managing Director

Yes. Sure, as far as Surat is concerned, we are waiting for certain CP completions, which we are told by the middle of this current month, they should be done. And we hope to conclude the transaction immediately thereafter. Surat is going to be about one million square foot development we expect to cover. So we have taken the last, I would say, seven, eight months, to work on the plans. We’ve inverted the plans. We’ve got the approvals, initial approvals in place. In fact, it’s good to go from a construction perspective. So we are not — the process on planning, etc, does not start now. It’s already been done. We’ve applied for the environment clearance. So I would say in a quarter after conveyance, we should be able to commence construction. And our ownership will be anywhere between seven — our ownership, as in the GIC, Phoenix JV ownership in that asset would be anywhere between 70% to 80% that will get crystallized in the next coming weeks.

We estimate 3.5 years construction period. And hopefully, this one million square foot mall, looking at the current demand-supply gap in Surat and the current rental trends, we should be able to deliver a very, very good rental per square foot there. Currently, I think the estimates in Surat currently, in the current year, rentals are for a good quality retail space stand at about 120, 130. So this is Surat. We have — typically, we don’t announce any transaction as such until it’s concluded. So at present, we are in advanced discussions at Jaipur and on some space in Chandigar as well, but it’s a little premature to announce it as yet. But you may rest assured that we are equally eager to deploy the funds that we have already available, and growth is clearly important for us. So we have a fairly large business development team operating in eight different markets looking for opportunities.

Parikshit Kandpal — HDFC Securities — Analyst

Coming back to the resi business. So resi business, what has been — we have been indicating that we want to do something on the resi business. So any update there, business development efforts being initiated out there, if you can update us on what’s the progress in residential.

Shishir Ashok Shrivastava — Managing Director

So as you may be aware, we had participated in a bid for a very, very premium land parcel in Alipur Kolkata, and we won that bid. Now we are waiting for the next steps from the government of West Bengal to proceed on that. So we are being a little opportunistic in our approach on resi, and we are also evaluating if there is any partnership or a platform that we may enter into to grow that vertical. In which case, we already have currency in our Bangalore development which is completely — which is where we have six towers of One Bangalore West and Kessaku completed and Tower seven will get completed shortly. So we may consider contributing that asset into such a JV or a platform with a strategic partner.

Parikshit Kandpal — HDFC Securities — Analyst

Okay. So these opportunities, how big like in terms of gross development value, how much would be the sales potential from there?

Shishir Ashok Shrivastava — Managing Director

It would be about almost two million — about a INR2,000 crore kind of — yes, five-year period, yes. Sale value of about INR2,000 crores over a five-year period at a conservative estimate.

Parikshit Kandpal — HDFC Securities — Analyst

And do you expect — when do you expect like what’s the pending things to be done here? Like has the deal happened in final stages. So when do you expect to break that around here, so the closure time lines?

Shishir Ashok Shrivastava — Managing Director

So I think there are certain steps that the government of West Bengal and particularly for them to complete the transaction, that I’m not able to crystal gaze and give a time line on that. But we’ve — the allotment has been completed, and we are ready to proceed on the next step as soon as we hear from them.

Parikshit Kandpal — HDFC Securities — Analyst

Okay. And what would be the approximate capex? Like land has been chosen. What is the land…

Shishir Ashok Shrivastava — Managing Director

It’ll be about a one million square foot development. I would say roughly around INR900 crores to INR1,050 crores kind of a capex. But obviously, a large chunk of that will get self-funded from sales, so one could assume that the land cost, which is roughly around INR400 crores, plus another INR200 crores of equity may be required to initialize the project.

Parikshit Kandpal — HDFC Securities — Analyst

Sorry, I think you said earlier two million square feet.

Shishir Ashok Shrivastava — Managing Director

No, it’s one million square feet, INR2,000 crores of estimated gross sales value.

Parikshit Kandpal — HDFC Securities — Analyst

INR20,000 a square feet you were saying in the selling price.

Shishir Ashok Shrivastava — Managing Director

That is the current market in that premium location. That is the current market in that premium location.

Parikshit Kandpal — HDFC Securities — Analyst

Okay. So it’s a premium development, premium residential development.

Shishir Ashok Shrivastava — Managing Director

Yes. Alipur as a micro market is seeing even for — I would say, for a good quality development, it is seeing those kind of pricing.

Parikshit Kandpal — HDFC Securities — Analyst

Just last question on the office, the two office, upcoming office outside Bangalore and Pune. So I think earlier Anuraag mentioned that we have started RCC work. So if you can update us how many floors will there be. And within in the presentation, you have given FY ’25 time line for completion. So when do you expect the rentals to start flowing in on these?

Shishir Ashok Shrivastava — Managing Director

So we’ve…

Anuraag Srivastava — Chief Financial Officer

During the last six months, eight months, we have actively worked on expanding our team and bandwidth for delivering the leasing of these office projects. So we’ve expanded the team in Bangalore. We’ve set up a new office leasing team there. We’ve expanded our team at Pune. We have also looked at alternate solutions for tenants. We are currently on rolling out the managed office or enterprise solution for a certain profile of clients who prefer that. We expect to commence leasing in this coming quarter in — I would say, in the first quarter of the coming year, financial year. And we’ll take it from there. We hope to do a significant amount of pre-leasing before we achieve OC, at least get a few anchors in place before we get OC. And the goal is to try and achieve, let’s say, 75% to 80% leasing within 12 months of getting the OC.

Parikshit Kandpal — HDFC Securities — Analyst

Okay. And the market here will be like, again, INR80, INR85 per square feet?

Shishir Ashok Shrivastava — Managing Director

See, in Hedbl,we are certainly hoping it — we expect it to be a little higher than that. And in Pune, for sure, we’ll be in that range of about 90 plus.

Parikshit Kandpal — HDFC Securities — Analyst

Okay shall not thank you and all the best thank you.

Operator

Our next question is from the line of Kunal Lakhan from CLSA. please go-ahead.

Kunal Lakhan — CLSA — Analyst

Yeah my first question was on the margin side. So this quarter, we reported pretty strong margins, one of the highest we have seen in the past many years. Firstly, like what were the drivers of this margin? And secondly, like how should we expect these margins to sustain going ahead?

Varun Jagdish Parwal — Deputy Chief Financial Officer & Head of Finance & Accounts – Non-Retail Businesses

Kunal, can you — am I audible. Varun on this side.

Kunal Lakhan — CLSA — Analyst

Yes, Varun.

Varun Jagdish Parwal — Deputy Chief Financial Officer & Head of Finance & Accounts – Non-Retail Businesses

So Kunal, first is the revenue mix. I think retail rental revenues were very strong. And one thing that we are seeing is that EBITDA margins have tended to sustain the rental income. This is because this is on account of higher other income that we get from events, promotions, signages and parking as well as the fact that a lot of capex and refurbishment was done at these malls in the last two years. So the ongoing opex, capex at the mass, which passes through a P&L is lower. The EBITDA margins are tending to be in excess of 100%.. Second, we had the contribution from the residential portfolio as well. Why is that typically at a lower EBITDA margin in retail but more — sales pushed up the margins on a quarter-on-quarter basis in quarter 2.

Third, hotels have also seen a significant improvement in the operating margin. Quarter one and quarter 2, four quarters typically accounts for 40% of their full year revenue and margins tend to be lower in a 30% to 35% EBITDA margin sort of a bracket, whereas in first half of this year, we are — at St. Regis, we are at a 40% margin. And at Courtyard by Marriott, which typically tends to just break even, we are actually at a 20% positive margin. So all of these factors cumulatively have led to our margins going up quarter-on-quarter and, of course, as well compared to the pre-COVID period.

Kunal Lakhan — CLSA — Analyst

Sure. That’s helpful. But considering like the hotel and your resi margins are lower than the retail margin, so on retail margin side, right, so 100% plus EBITDA margin on the retail side, do you think that will sustain since you’re done with that opex, capex in the last few years? Is that what you’re saying?

Varun Jagdish Parwal — Deputy Chief Financial Officer & Head of Finance & Accounts – Non-Retail Businesses

So I think we have generally guided to EBITDA being at about 95% of rental income. But for last several quarters, we have seen EBITDA actually ended up being above 10% and with a large part of opex capex done. And other income stepping up, the — and the revenue share percentages from the — also picking up on account of higher consumption, I think one can expect EBITDA to be at par, if not higher than the rental income.

Kunal Lakhan — CLSA — Analyst

And also the fact that as your trading occupancy catches up the — occupancy, there will be a fair bit of –.

Varun Jagdish Parwal — Deputy Chief Financial Officer & Head of Finance & Accounts – Non-Retail Businesses

Yes, there is the operational efficiency that one would get through because right now, the expenses are being born on a lower amount of trading area. So as the trading occupancy moves up, there is higher recoveries from the retailers, which should help support the margins. So even if in case our marketing picks up, which we typically don’t charge to the retailers, however, the other income from the new area that becomes trading should help support the margins.

Kunal Lakhan — CLSA — Analyst

Sure. That’s very helpful. Shishir, just on the discretionary consumption side, right, what’s the early trend that you’re seeing considering the inflationary environment we are getting into or we are already into and kind of a slowdown that we are seeing in the economy also? So any comment there would be helpful.

Shishir Ashok Shrivastava — Managing Director

I think so far, the inflation has actually had a positive impact. If we just look at our H1 performance, where you see the consumption growth, as I mentioned to you, we’ve seen electronics grow at about 33%; fashion and accessories, at about 30%; F&B, at 30-plus percent; jewelry, at 120-odd percent. All of these have indicated that so far, the inflation has not had an adverse impact on consumption. So therefore, the — really, it’s only going to be — I think the next two quarters are going to test how this is going to pan out. We are seeing that in urban cities, we are not seeing the impact on discretionary spend as yet, but we’ll have to wait it out and see how it pans out.

Kunal Lakhan — CLSA — Analyst

Sure thanks and all the best thank you.

Operator

Our next question is from the line of Biplab Debbarma from Antique Stockbroking. please go-ahead.

Biplab Debbarma — Antique Stockbroking — Analyst

Good afternoon everyone So I have three questions. First question is on the pre-leasing of your upcoming projects. You have explained Indore, 86%, why you did so. But just wondering what prompted you to lease the entire project. We could have done the same. And another being a line of fully premium project, we could have exploited that strategy to –.

Shishir Ashok Shrivastava — Managing Director

Biplab, I apologize, but I’ve not been able to clearly hear your question. You started off talking about Indore at 86%, and then I could not hear.

Biplab Debbarma — Antique Stockbroking — Analyst

So I’m just wondering what prompted you to lease the entire Ahmedabad project but not doing so in Indore. I mean we could have used the same strategy in Ahmedabad also.

Shishir Ashok Shrivastava — Managing Director

See, the products are, firstly, a little different, right? Indore and Ahmedabad. Ahmedabad is gearing more towards — a little more towards luxury and bridge to luxury. Ahmedabad, see, for us, strategically, when we looked at Indore, we had a certain rental rate that we wanted to achieve upon leasing, which we’ve achieved so far. But in terms of offtake, we believe that once the mall becomes operational, certain of the in-line stores and few smaller, larger stores that we have remaining, we will be able to leave them out at a better rental, and therefore, we have continued to hold on to that. But in this — by the end of this quarter, when we report the results for the next quarter, you will see that, that has already improved. So in Ahmedabad, when we acquired the mall in 2018, there was talk of another competitor buying line for another mall in the vicinity. So we saw that it was in our interest to move fast and derisk the investment and lease it out. In Indore, such competition is not the concern. Also in Ahmedabad, the demand continued to be high from retailers. And Indore, they have been, I would say, a little cautious. There’s a big difference in the size. The Ahmedabad Mall is seven lakh 75,000 square feet, Indore is over 10 lakh square feet. So that is another major difference.

Biplab Debbarma — Antique Stockbroking — Analyst

Okay. That’s great. Sir, second question is on the office towers. Sir, you have a plan for office towers also in — and Chennai. And — but you have started –. So are you seeing some kind of commercial or technical issues there between that segment?

Shishir Ashok Shrivastava — Managing Director

That’s the reason we are not starting — there’s no commercial or technical issue in either of these two locations. We have prioritized –. We are working in parallel on all the projects. Chennai, we have got our approvals only very recently, and we intend to commence work shortly. In –, we’ve already commenced with the excavation at site, so there are no challenges per se.

Biplab Debbarma — Antique Stockbroking — Analyst

So we can say in the next 1, two quarters, we would be seeing construction work in all the four projects?

Shishir Ashok Shrivastava — Managing Director

When you compare with these two projects of Whitefield and Chennai with us taking — commencing construction at Wacker and –, please understand that Whitefield is an operational mall. Chennai is an operational mall in Hebel and at Wacker, we saw the benefit of continuing the construction and finishing the RCC work by the time the mall is operational. Here, there are logistics aspects that we are working around, but we have commenced construction at those locations. That’s good..

Biplab Debbarma — Antique Stockbroking — Analyst

Sir, final question is, I think on already 47,000 on the business development, so my question is on business development also. So you would be generating significant cash flows from your business operation. Also, you have a lot of cash at hand. And the way I’m saying, correct me if I’m wrong, we are doing kind of one business development deal each year, the land deal and the INR400 crores, INR500 crores maybe, plus some construction work. So how do you see the cash utilization? Would there be enough business development velocity to utilize the cash flow that we generate and that much cash flow we have in hand or we would be doing something like what — investing in other noncore business like warehousing or opportunities like residential. Are we seeing some kind of challenges in business development deal or closing the business development deal?

Shishir Ashok Shrivastava — Managing Director

No. We’ve always been extremely selective about what sites we pick up. It’s not like there’s a buffet to go and buy assets. One has to be very, very judicial and prudent in acquisitions. And we also do not want to over-leverage ourselves. So we are looking at — we have timed our cash flows — our free cash flows with these acquisitions so far. So just to recap, as on earlier this year, we had cash in books of about INR2,200 crores. Over the next 2.5 years, we expect free cash flow of another INR3,000 crores. So we are looking at a deployment strategy which times well with this because it’s not just about deploying INR5,000 crores on land acquisition.

One would deploy maybe INR1,500 crores or INR2,000 crores towards land acquisition out of these funds and retain the rest as equity for construction since we do not want to over-leverage ourselves either. We have — as I mentioned earlier in my response to Puneet, that we do have a fairly large business development team which is looking at specific markets and within those specific markets, there are specific locations that are of interest to us. We will not deviate from our approach of creating only dominant consumption centers, so we do not want a grade two or grade three location. So we are very prudent and selective about how we go about our growth.

Biplab Debbarma — Antique Stockbroking — Analyst

Thank you sir that’s all thank you.

Operator

Our next question is from the line of Girish Choudhary from Spark Capital. Please go-ahead.

Girish Choudhary — Spark Capital — Analyst

Yeah hi good afternoon thanks for taking my question. Firstly, specific to Bangalore Mall and maybe Pune Mall, if you look at the consumption numbers, has been pretty good, pretty strong. And also the YTDs have been going up. But if I look at the revenue sharing numbers, right, revenue as a percentage of consumption, the numbers are still very, very low, around 10% to 11% lower than the company average. So what could be the reason? And incrementally, do you see this recovering or they will remain at these levels?

Shishir Ashok Shrivastava — Managing Director

Girish, thank you for your question, very pertinent one. When you look at the revenue as a percentage of consumption, I think there’s a differentiation in Bangalore and Pune. In Bangalore, we have a very — I would say, a sizable occupied by jewelry as a category, right? So jewelry, as I mentioned, we saw significant growth in consumption when we compare Q2 FY ’23 or H1 FY ’23 with the previous years. But as a contributor, the jewelry contribution may be in the range of about perhaps 3% to 4% of sales — 2% to 3% of sales as revenue rented. So while consumption growth is higher, incremental contribution from revenue as rental is not the same as 12% or 18% for — which may be the case for other brands.

Jewelry sits at about 2% to 3%. So we have seen a significant growth in — of 18-odd percent in Bangalore on account of consumption for jewelry. In Pune, we have actually — in this quarter, we had to conclude certain waivers for the previous quarter and even the period prior to that. So that for this quarter, we have seen a dip of about INR5.5 crore or INR5.6 crores on account of these waivers, which going forward will not be there, right? So I mean for all practical purposes, for the next quarter, one can look at this quarter’s rental for Pune, rental income for Pune, and add another INR six crores to that to be at close to about INR52 crores, INR53 crores.

Girish Choudhary — Spark Capital — Analyst

Understood. But just as a follow-up on the previous calls, you did mention of these malls also moving up to maybe anywhere between 13% to 15% revenue sharing. So does that still…

Shishir Ashok Shrivastava — Managing Director

I don’t believe I have ever stated a number of 15% as revenue share across all categories in the mall because that is — that’s not likely, right? When you have department — when you have jewelry and you have watches and luxury, which is at a lower revenue share component. But I would like to say that zz Palladium, as an example, has achieved that iconic status, where it — you can see a 16%, 18% revenue share. So these malls will grow as the brand mix changes and you get higher luxury brands. Then the contribution will grow in these malls. So it will take a — but I think it’s on track. We always — for our Marketcity malls, we’ve always estimated to be in that 12% to 14% kind of a range, and we are on track for that..

Girish Choudhary — Spark Capital — Analyst

Sure. Second, on the overall consumption trends, again, while you did share about which are the categories which are doing well, but if you can also share between brand mix, luxury or maybe bridge to luxury also, maybe domestic and international brands, how are they sort of doing. And as and when the renewals come up, is there an upside if you plan to churn out some of them, the underperforming categories of brands and retail them with categories of brands –. Some thoughts on mall management.

Shishir Ashok Shrivastava — Managing Director

That is routine, in our case, where nonperforming brands are churned out, and we track all the consumption closely. Typically, one would — if I were to hazard an estimate here for — on renewal of spaces, at least in this current cycle, when contracts come to an end of tenure and they go up for renewals, we will either renew them or we lease them. At an average, one should be able to see a 20% or exceeding a 20% growth on the rental on such renewals.

Girish Choudhary — Spark Capital — Analyst

And any thought or color on brand mix between domestic and international, how are they performing?

Shishir Ashok Shrivastava — Managing Director

I don’t think we — I don’t think I have the data to really give you a color on that. But if you visit our malls often enough, you will know the brand mix is geared more towards multinational brands, and so the delta may not be much.

Operator

Our next question is from the line of Ashwani Kumar Agarala from Edelweiss Mutual Fund. please go-ahead.

Ashwani Kumar Agarala — Edelweiss Mutual Fund — Analyst

Good afternoon sir I’ve got a couple of questions. You said that 15% of the people have not yet come back to the malls. So is there any particular reason for that? Or this is a structural shift in the shopping behavior? Because if we guess that Q2 FY ’23 was a very normal quarter.

Shishir Ashok Shrivastava — Managing Director

See, I think a good amount of footfalls will come back once our multiplexes get operational. And also, the hypermarket have seen some challenge, as you know, from the operator side in the recent past. As that stabilizes, that will bring some footfall back. But also, we only in this last — I would say, in the last five months, we’ve started with all the high-impact events and promotions. So we — there will be a bit of a stickle effect. I don’t think that there’s been it would be your current statement to say that there’s been a shift in the shopping behavior as compared to FY ’20 in the consumer today. Yes, during COVID, of course, it was. But — we are seeing a good quantum of crowd back. October has seen a significant growth in footfalls which was not reported in this quarter. But yes, October have seen a significant improvement in footfall. It may be 90%.

Ashwani Kumar Agarala — Edelweiss Mutual Fund — Analyst

Yes, October was the month of festival. That’s what we may have. And sir, if we look at — if we come to the chart number where you show your Q2 FY ’23 consumption, it is at 118% excluding the Palassio contribution? So for the last three years, the contribution has grown by 18%, which is in line with the inflation growth or maybe slightly lower. So how do we improve this contribution increase so that we get a real increase? And that too is contributed by mostly two or three malls: that’s Phoenix Palladium, which grew by 24%; Bangalore, 39%; and Pune was in line with inflation at roughly 22% for three years. But whereas you see PMC Mumbai, Chennai Palladium, the growth was on the lower side.

Shishir Ashok Shrivastava — Managing Director

Correct. I would say that, again, if you look at the ramp-up of the trading area versus the leased area, that is going to create a significant growth in the consumption. And you are right, it’s a very intelligent question that you have of aligning this with inflation. But at the end of the day, inflation, to some extent, can be a positive. But at some point, it will start leveling out the consumption pattern if it continues to grow in the same way. For example, let’s talk about Kurla. Trading occupancy was at 86%, right? Leased occupancy stands at 97%. So as we — as the stores start trading, that will automatically boost consumption in Kurla, right? For example, Reliance Smart will open up in January. Several other stores have opened up recently in October. So I think this quarter, one should see a positive impact of this.

We have some 50,000 square feet which is already leased, but fit-outs are just about to start. That may spill over into the last quarter of the financial year. So that is certainly going to impact this. Same goes for Pune. Pune trading occupancies was at 85% for this Q3 — for this Q2. Leased occupancy stands at 92%. So you have — we have a sizable area here which is going to start contributing to consumption. Chennai trading occupancy was at 88%; leased occupancy, at 96%, same impact expected to be seen here.

Ashwani Kumar Agarala — Edelweiss Mutual Fund — Analyst

Okay. Sir, have you felt any kind of an impact from the mall for the customers coming to Phoenix Palladium?

Shishir Ashok Shrivastava — Managing Director

See, there’s no real objective way to answer this question, right? On one hand, we are seeing our consumption is growing. We had a lot of area even at Lower Parel which during H1 was under fit-out and undergoing changes. And we saw a bit of churn that we had initiated there. So it’s stable state operations. One can say only in this current quarter that one can compare — and goal, I don’t have a comment on that. It’s a very different product.

Ashwani Kumar Agarala — Edelweiss Mutual Fund — Analyst

Okay. Sir, last question. You said that we will plan to only go in Tier one cities where there’s a lot of purchasing power. So we can be sure that we would be in the top 12, 15 cities only, right? As per you, once in a single city, how many malls can people build so that they’re both sell profitably?

Shishir Ashok Shrivastava — Managing Director

Yes. I think every city, it varies. It depends on the population, and it depends on the GDP of that city — GDP per capita of that city. So there are multiple factors. Like a city like Mumbai, there is no reason why it can’t support 20 good malls, except for the fact that there isn’t land at the right location available, right? For a city, on the other side, if one was to look at a city like Indore, which cumulatively the city and the neighboring cities and the district would probably be able to service about five million, 5.5 million people, maybe three malls. It can sustain three large malls. So it varies from city to city. We — when you talk about the top 15 to 16 cities or 12 to 14 cities, whatever you mentioned, we have reviewed 30 cities and boil down to about 12 to 15, where we are actively looking at opportunities

Operator

Thank you. Ladies and gentlemen, that was the last question. [Operator Closing Remarks]