Results Review for Phoenix Mills, HG Infra, and Deccan Cements

The Phoenix Mills (NS: PHOE ): Phoenix Mills (PHNX) reported strong revenue/EBITDA/APAT at INR 4.9/2.4/1.05bn, beat at all levels. Retail consumption for the year was INR 46.8bn (excl. Palassio) and was 1.7x FY21 and 70% of FY20/FY19 level. Consumption has bounced back and, in Apr-22, it was 129% of a pre-COVID level. The effect of inflation on consumption was not significant; however, price escalation is on the cards from many retailers, which will translate into higher revenue for PHNX. The convergence of leased and trading occupancy shall further push growth by ~8% as multiple tenants under fit-outs move to trading. PHNX acquired the remaining stake in PMC Chennai for INR 9.4bn at a cap rate of ~9%. Within office space, Fountainhead Tower 2 started contributing. Office income was up 22% YoY in FY22. Until now (in FY23), 0.1msf has been leased in this segment. Gross debt inched up INR 740mn sequentially, on account of debt drawn for Indore and Ahmedabad mall construction, which are expected to commence operations by Diwali 2022. We maintain BUY, with an unchanged SOTP of INR 1,364 on account of (1) slightly better rental pricing; (2) 15% NAV premium on account of likely new mall addition (PML has huge growth headroom as the balance sheet is under-leveraged and it may now shift gear from capital perseveration to growth); and (3) likely increase in new mall/office addition.

H.G.Infra Engineering Limited (NS: HGIN ): HG Infra’s (HG) revenue/EBITDA/APAT came in at INR 10.3/1.6/0.9bn, a beat of 0.9%/0.9%/-1.9%. HG has guided for revenue of INR 50/60bn and an EBITDA margin of 15.5-16% for FY23/24. With order inflow (OI) of INR 43.3bn, the order book (OB) stood at INR 79.7bn (the highest-ever) at the Mar-22 end. FY23 OI guidance stands at INR 90-100bn. The standalone gross/net debt remained flat at INR 3.1/1.6bn (similar level as in Dec-21), with net D/E at 0.11x. The equity requirement in nine HAM projects stands at INR 4.6/2.1/1.1bn for FY23/24/25. The NWC days as of Mar-22 stood at 67. HG plans to monetise the three HAM projects by Mar-23. Given robust order inflows and strong execution, we maintain BUY, with a revised SOTP-based TP of INR 932 (14x Mar-24E EPS, HAM 0.9x P/BV). We have cut our EPS estimates for FY23E/24E by 5.1/7% to account for higher raw material prices.

Deccan Cements Ltd (NS: DCNC ): We maintain our ADD rating on Deccan Cements (DCL), with a lower target price of INR 515/sh (6x its Mar-24E EBITDA). The company reported weak performance in Q4FY22 as both volumes and margin contracted YoY on lower sales and rising cost inflation. It reported 13/35/15% YoY revenue/ EBITDA/APAT decline. DCL’s 2mn MT capacity expansion is slightly delayed (we expect it to be operational in FY25) due to a delay in environmental clearances.

Phoenix Mills

Well-poised for growth

1Phoenix Mills (PHNX) reported strong revenue/EBITDA/APAT at INR 4.9/2.4/1.05bn, beat at all levels. Retail consumption for the year was INR 46.8bn (excl. Palassio) and was 1.7x FY21 and 70% of FY20/FY19 level. Consumption has bounced back and, in Apr-22, it was 129% of pre-COVID level. The effect of inflation on consumption was not significant; however, price escalation is on the cards from many retailers, which will translate into higher revenue for PHNX. The convergence of leased and trading occupancy shall further push growth by ~8% as multiple tenants under fit-outs move to trading. PHNX acquired the remaining stake in PMC Chennai for INR 9.4bn at a cap rate of ~9%. Within office space, Fountainhead Tower 2 started contributing. Office income was up 22% YoY in FY22. Until now (in FY23), 0.1msf has been leased in this segment. Gross debt inched up INR 740mn sequentially, on account of debt drawn for Indore and Ahmedabad mall construction, which are expected to commence operations by Diwali 2022. We maintain BUY, with an unchanged SOTP of INR 1,364 on account of: (1) slightly better rental pricing; (2) 15% NAV premium on account of likely new mall addition (PML has huge growth headroom as the balance sheet is under-leveraged and it may now shift gear from capital perseveration to growth); and (3) likely increase in new mall/office addition.

Financial highlights: Revenue: INR 4.9bn (+28.4%/+16.6% YoY/QoQ, 14% beat). EBITDA: INR 2.4bn (+39%/+4.6% YoY/QoQ, 2% beat). EBITDA margin: 48.7% (44.9%/54.2% Q4FY21/Q3FY22, vs est. of 54.3%). Ex-Palassio, retail rental income came in at INR 2.3bn (91% of Q4FY19), with EBITDA at INR 2.3bn (96% of Q4FY19). Income from offices was at INR 431mn (+17% QoQ). Income contribution from Fountainhead Tower 2 benefitted the office portfolio. Over 0.1msf of the area will generate rent in the coming months.

Consumption normalises; trading occupancy to catch up: Retail consumption in Q4FY22 was at INR 16.7bn vs INR 20.7bn in Q3FY22, affected by the Omicron wave. Compared to the pre-COVID level, consumption was 103% of Q4FY19 (excl. Palassio). Consumption in Apr-22 was INR 7.2bn (129% of pre-COVID level). Leased occupancy across malls has been on an average 95%, with trading occupancy at ~87%. This gap is due to several new brands being under fit-outs. The under-construction malls in Pune/Indore/Bangalore/Ahmedabad are pre-leased at 51/74/64/85%, with plans of opening up the Indore and Ahmedabad ones by Diwali 2022 and the other two by FY24. Project Rise has received environment clearance and the Kolkata project has received building plan sanctions; both are expected to commence operations in FY25/26 and FY26/27 respectively.

Robust liquidity position: Consolidated gross debt stood at INR 43.8bn (vs INR 43bn, as of Dec-21). The increase was on account of drawing down of construction debt for Ahmedabad and Indore malls. The average cost of debt went down by 29bps QoQ to 7.30%, from 7.61% in Dec-21. The group liquidity stood at INR 25bn, with an unutilized OD of INR 6.2bn. 55% of the debt has already been refinanced, with an additional 30% yet to be done.

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