Stock Idea | This mall developer is a consensus 'buy' with few takers

NEW DELHI: BSE Realty index's worst performing constituent of the last one year is India's leading mall owner and operator The Phoenix Mills, whose shares have risen merely 35 per cent in the period mentioned compared with a 88 per cent jump in the sectoral index.

This underperformance has come at a time when 19 of the 20 recommendations on the stock are either 'strong buy' or 'buy'. A play on urban consumption, Phoenix Mills caters to 18 per cent of the urban population and 42 per cent of total population in metropolitan cities.

Analyst targets suggest up to 43 per cent potential upside for the stock. But investors aren't that convinced so far. That is, when some of the BSE Realty index stocks such as Mahindra Lifespace (up 228 per cent), Sobha (205 per cent), Brigade (130 per cent), Indiabulls Real Estate (127 per cent) and DLF (120 per cent) have already more than doubled investor money in the last one year.

Fundamental views
ICICI Securities, which has maintained its 'buy' rating on the stock, on Tuesday said: "The recovery in retail consumption was hindered by a fresh round of mall shutdowns across India owing to the second Covid wave. While rental waivers are likely in H1FY22 owing to the Covid-related shutdowns, retail rentals may revert to pre-Covid levels in H2FY22, assuming there is no third wave."

For now, the brokerage is building in a 30 per cent loss of rentals in FY22.

Shutdowns hit consumption in malls for Phoenix Mills in FY21, which stood at Rs 3,330 crore or 69 per cent of FY20 level. Rental income at Rs 560 crore too took a hit and was 55 per cent of FY20 levels.

Yet what makes ICICI Securities positive on the stock is the fact that the realtor has a potential war chest of Rs 3,000 crore to fuel growth going ahead.

Phoenix Mills has nine operational malls spread over 6.9 million square feet (msf), which have achieved 15 per cent like-to-like consumption growth annually over FY13-FY20. It witnessed 14 per cent rental income growth annually over the same period. Phoenix has six under-construction malls, which are expected to be operational over FY22-26. These malls are spread over 6 msf across Mumbai, Bengaluru, Pune, Ahmedabad, Kolkata and Indore.

On the debt side, the company had consolidated gross debt of Rs 4,470 crore and cash and liquid investments of Rs 1,030 crore, as of March 31. With the first tranche of GIC PE fund infusion of Rs 1,110 crore in June and CPPIB fund infusion of Rs 380 crore in Kolkata Mall SPV in May, Phoenix had about Rs 2,400 crore of liquidity as of June 30.

Apart from this, the company has access to additional funds of Rs 1,000 crore for deployment in standalone business and mall SPVs, analysts said.

"We believe the long-term growth story for Grade A malls in India remains intact," ICICI Direct said.


Retail vs housing
Analysts said the retail real estate space is different from the housing and office segments. Housing and office demand are intrinsically linked to the overall economic cycle of a country, while the retail real estate space is linked to a country’s consumption story, which is more secular in nature compared with corporate growth or housing demand.

"Unlike housing developers, where the focus is on inventory, land bank and pre-sales, retail realty is a stable annuity-like concept with a healthy dash of growth (linked to consumption) thrown in," Edelweiss said in a note.

Data showed consumption in Phoenix malls had almost revived to pre-Covid levels by the end of March quarter.

Similarly, after the second wave, July consumption in the Phoenix's operational malls stood at 96 per cent of July 2019 level and 105 per cent of March 2021 level.

"This has reinforced our conviction on the underlying strength of retail consumption in the country. Phoenix gave discounts in fixed rentals to tenants in malls in some quarters, while raising the quantum of revenue share. These relaxations were only till consumption reached a certain level. We believe the company can continue with this model of lower ‘minimum guarantee’ rentals and higher revenue share till the time consumption comes back on track," Edelweiss said.

Technical view
Osho Krishan, Technical Analyst, Anand Rathi, said the Phoenix stock has been in a cycle of higher highs-higher lows from its 2020 bottom and is currently hovering near a cluster of its exponential moving averages on the daily chart, indicating a primary uptrend.

"The stock is hovering near its 52 week high of Rs 925 and is poised to surpass the same to reclaim its lifetime high zone. Historically, the 100-DEMA has provided a cushion and a resurgence has been seen on the counter. Keeping the same view and technical setup, the stock is looking very lucrative. However, the Rs 880 level is a crucial hurdle to watch out for, as the stock price has never witnessed any weekly closure above the same," Osho said.

"The mean of the weekly Bollinger Band (20, 2) that even coincides with the previous swing high is expected to be the demand zone from where the uptrend should continue," he said.

Aditya Agarwala, Senior Technical Analyst at YES Securities, isn't impressed. He said the stock is losing momentum on the upside after facing resistance at the trend line placed around its previous peak of Rs 925.

"On the downside, the immediate support stood at Rs 795, and a breakdown from that support can trigger deeper correction to Rs 765-740 levels," he said.

Price targets
The stock has a median price target of Rs 977.50 based on the estimates of 20 analysts, suggesting a 14 per cent potential upside. ICICI Securities has a target of Rs 1,231, suggesting 43 per cent upside.

ICICI Securities said Phoenix would have 13 million square feet of operational mall space by FY26 compared with 6.9 msf currently operational. It expects Phoenix to achieve a 14 per cent rental income CAGR (ex-new Kolkata asset) over FY20-25E, resulting in Rs 1,950 crore of rental income in FY25 against nearly Rs 1,000 crore in FY20.

Edelweiss has a target of Rs 1,113 for the stock, suggesting 30 per cent potential upside. "A Rs 2,500 crore war chest and surplus cash flows from residential portfolio will help it weather the Covid-19 storm and deliver an 81 per cent earnings CAGR over FY22–24E," it said.