Phoenix Mills Q2 FY21 Results: Review - Gradual recovery to normalcy

HDFC Securities tweaked their FY21/22/23 estimates and raise target price to Rs 841/sh vs Rs 828/sh earlier. Phoenix Mills reported revenue at Rs 2.1 bn, -48%/+60% YoY/QoQ and 15% ahead of estimate. However, lower than expected EBITDA margin and higher interest costs led to loss of Rs 359 mn (vs estimated loss of Rs 137 mn). All the retail assets have been operating since the end of the quarter. While consumption had reached to 40-55% across major malls in Q2 FY21, 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 space was at 94% of Q2 FY20. Residential segment also posted strong recovery with sales of Rs 447 mn. On the back of QIP in August, net debt reduced to Rs 34 bn from Rs 43 bn on Mar 20 end with net D/E at 0.72x (vs 1.15x at the end of FY20). Despite the near term challenges, HDFC Securities maintains BUY rating on Phoenix Mills given its strong positioning and healthy balance sheet.

Consumption recovery playing out:

Phoenix Mills registered QoQ growth of 60% in revenue as consumption reached 40-45% of pre-Covid level. Revenue from the retail segment reached 45% of Q2 FY20. The company has concluded r enegotiation with 90% of the retailers and has provided discount on minimum guarantee (MG) rent with 150-200 bps 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 a short period of time after Mar 21 for some of the retailers, allowing Phoenix Mills 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 34 bn from Rs 43 bn on Mar-20, on the back of QIP done in August 20. Average cost of borrowing reduced to 8.9% from 9.14% in Q1 FY21 and is likely to decrease further by FY21 end. Despite the challenges, Phoenix Mills generated positive operating cash flow of Rs 963 mn during first half of FY21. 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 15 bn balance capex for four upcoming malls, Rs 1.8 bn would be incurred in the second half of FY21 and remaining would be spent over FY22-23. All the four malls are expected to be operational by early FY24, which could boost earnings.