Phoenix Mills (PHNX) shopping malls consumption at T4FY21 of Rs14.4 billion increased 5% QoQ to 90% of T4FY20 levels on a comparable basis (LTL). For FY21, shopping center consumption of Rs33.3 billion was at 69% of FY20 levels while rental income (ex-CAM) of Rs5.6bn was at 55% of FY20 levels. We assume a 25% LTL rental income loss for FY22E due to shopping center closures in S1FY22 and hold our estimates for FY23 as we believe long term growth of Class A shopping malls in India remains intact. We maintain our PURCHASE rating with a revised target price based on the March 22 SoTP of Rs 1,026 / share (previously Rs 1,042 / share) incorporating the CPPIB fund injection into the new Kolkata mall and maintain our 10% premium over net asset value given the likely closure of the PE Platform Accord GIC by Sep’21. The main risks of our appeal are an extended second wave of Covid impacting consumption in shopping centers and a drop in occupancy and rentals in shopping centers.

– T4FY21 sees strong recovery in consumption, Covid woes return to T1FY22: PHNX reported consumption of Rs14.4 billion at T4FY21, which represented 90% of T4FY20 consumption on an LTL basis while rental income amounted to Rs2.2 billion or 97% of T4FY20 levels. For FY21, shopping center consumption of Rs33.3 billion was at 69% of FY20 levels while rental income of Rs5.6bn was at 55% of FY20 levels. As fiscal 22E approaches, the recovery in retail consumption has been hampered by a new round of shopping center closures across India due to the second wave of Covid. Although it is difficult to predict the exact trajectory of the recovery in consumption in FY22E, we have included a 25% loss in LTL rental income for FY22E of Rs 2.5 billion assuming Rent waivers similar to FY21. According to PHNX management, rental negotiations will be discussed when the malls reopen and the majority of tenant expirations at S1FY22 have been extended.

– CPPIB to inject funds into Kolkata shopping center, GIC deal is expected soon: PHNX announced that CPPIB is expected to inject up to 5.6 billion rupees into its new shopping center in Kolkata , of which the initial injection of funds of 3.84 billion rupees in two installments will result in The Office owns a 49% stake in the SPV shopping center. PHNX and CPPIB have also committed an additional 8 billion rupees for their existing platform in the SPV Island Star for the completion of projects (16 to 17 billion rupees in capex). Additionally, PHNX’s potential platform deal with GIC PE is at an advanced stage and the deal may close within a quarter.

– Estimated rental income CAGR of 14% on FY20-25E: At portfolio level, PHNX will have ~ 11msf of operational retail space by FY23-24E (6.9msf currently operational, including Palassio, Lucknow). We expect PHNX to reach a rental income CAGR of 14% (former Kolkata asset) at a portfolio level over FY20-25E which could see PHNX record Rs19.5 billion in rental income in FY25E against ~ Rs10bn in FY20. Of the 19.5 billion rupees gross rental income in fiscal year 25E, PHNX’s share is about 75% or 14.7 billion rupees.

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 share 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.