Phoenix Mills a best play on India retail story, says JM Financial; raises target price

The Phoenix Mills is well-positioned to capitalize on the burgeoning growth within India’s retail sector, coupled with robust rental revenue expansion emanating from its retail portfolio, analysts said.

Over the past three months, The Phoenix Mills shares have appreciated over 28%, while the stock has delivered an impressive return of more than 66% during the current calendar year of 2023. Analysts believe the The Phoenix Mills share price holds considerable potential for further substantial upside.

JM Financial maintained its ‘Buy’ rating on the stock and raised the SOTP-based target price to ₹2,520 per share from ₹2,270 earlier.

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India’s retail industry is expected to grow at a FY22-27E CAGR of 14% to ₹120.59 trillion. Phoenix Mills has a presence in 5 of the top 8 cities and is well-placed to benefit from the underlying growth in the retail industry. 

The brokerage expects its rental revenue from the retail portfolio to grow at 30% CAGR over FY23-26E. 

“We ascribe a 20% premium to the Retail segment March 2025E NAV as the small portfolio is expected to deliver a higher earnings growth compared to its tenant base (majorly consisting of discretionary consumer companies),” JM Financial said.

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JM Financial compared Phoenix Mills with a sample comprising its tenants on three parameters and found that the company stands out on earnings growth and margin profile. However, as with all real estate development companies, the company’s returns are at the lower end. This is primarily because of a sizable amount of capital being employed in land bank or development assets.

Additionally, its unique portfolio of brands is the best proxy to play across the entire spectrum of the discretionary wallet spends of an average Indian consumer, it said. 

Meanwhile, key risks include the potential delay in stabilisation of malls, a delay in the commissioning of new malls, and threat of OTT platforms and e-commerce, according to the brokerage firm.

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During the quarter ended September 2023, The Phoenix Mills’ net profit grew 36.92% to ₹303.82 crore from ₹221.89 crore in the same period last fiscal. 

The company’s net consolidated total income in Q2FY24 was at ₹906.64 crore, registering a growth of 32.65% from ₹683.49 crore in the similar quarter last year.

At 11:40 am, The Phoenix Mills shares were trading 0.34% lower at ₹2,350.50 apiece on the BSE.

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Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.