The Phoenix Mills Limited (503100) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 and 9 Months FY '25 Results Conference Call of The Phoenix Mills Limited. [Operator Instructions] Management of the company is being represented by Mr. Shishir Shrivastava, Managing Director; Mr. Kailash Gupta, Group CFO; and Mr. Varun Parwal, Group President, Strategy, Audit and Head, Corporate Finance. [Operator Instructions] Please note that this conference is being recorded. At this time, I would like to hand the conference over to Mr. Shishir Shrivastava. Thank you, and over to you, sir.

Thank you, Michelle. Good morning, everyone. We take pleasure in welcoming you all to discuss the operating and financial performance for the third quarter and 9 months ended December 2024. It's our privilege to share yet another strong quarter of growth and success with you. Our Q3 FY '25 results reflect our unwavering commitment to delivering sustained value for all our stakeholders. I hope you've had a chance to look at the results presentation shared by us. The same is uploaded on the stock exchanges as well as our corporate website. I will now take you through the key highlights of the results. Let us start with an overview of our performance on a consolidated level. In Q3 FY '25, our core businesses, that is retail, offices and hotels achieved an operating revenue of INR 927 crores and EBITDA for the quarter was at INR 561 crores. We had strong performances across our core operating businesses, which reflected in revenue growth of 14% year-on-year and EBITDA growth of 21% year-on-year. To provide a more accurate picture of our core business performance, we have adjusted the figures to exclude the contributions from the residential and noncore businesses, which are inherently variable in nature. For 9 months FY '25, operating revenue from our core businesses stood at INR 2,613 crores, up 19% versus 9 months FY '24. EBITDA for the 9 months from our core businesses was at INR 1,601 crores, up 21% versus 9 months FY '24. For the group at a consolidated level, revenue from operations for 9 months FY '25 stood at INR 2,797 crores, which is a 5% increase year-on-year and EBITDA was at INR 1,602 crores, up 3% versus 9 months FY '24. Moving on to our retail business performance. First half is the expansion -- update on the expansion of Phoenix Palladium Mumbai. I'm pleased to announce the completion of a significant expansion at Phoenix Palladium Mumbai, adding approximately 250,000 square feet of gross leasable area. This expansion aims to offer an unparalleled retail experience with 5 levels of curated retail offerings, a diverse selection of distinguished F&B outlets and an elevated dining experience. Planned additions include entertainment options such as a pickle ball and paddle coat and an indoor gaming and entertainment hub. In November '24, we celebrated the grand opening of this new annex building with the launch of South Mumbai's first and Mumbai's largest Uniqlo store. This was followed by the opening of Celio's flagship store and lifestyle along with other retailers, including Eco, Gap, [indiscernible] Dyson and Nykaa Luxe and more launches expected in the coming months. We have created a 2-level F&B village featuring over 18 dining venues, 7 which are currently under fit-out and a large entertainment hub under fit-out with Palassio, which will further enrich the center's offering. Moving on to our operational highlights. Retail consumption surged to over INR 4,000 crores in Q3 FY '25, marking a robust 21% year-on-year growth. This reflects the continued strength of discretionary spending and the resilience of our premium retail assets. We witnessed a significant revival in consumption during this festive season with strong growth at several of our properties, including Phoenix Market City Pune, which reported an 11% increase and Phoenix Palassio Lucknow which saw a 19% increase. Of course, the recently launched properties at Indore, Ahmedabad, Pune and Bangalore continue with the strong operating trends. Across the portfolio, jewelry emerged as the top-performing category this quarter with a growth of 26%, followed by FEC and multiplex showing a 16% growth. Fashion and accessories showed a growth of 13%. In this last quarter, we saw unseasonal heavy rains in Bangalore and Chennai, which impacted consumption. It is our estimate that our overall consumption would have been higher by about 1.5%, approximating about INR 55 crores to INR 60 crores in Q3 FY '25 had we not seen this unusual weather change. Retail rental income stood at INR 505 crores, up 12% year-on-year. And retail EBITDA for the quarter came in at INR 500 crores -- INR 505 crores as well, up 15%. Consumption reached INR 10,500 crores during the first 9 months of this fiscal year, up 23% year-on-year. This compares favorably to the total consumption of INR 11,300 crores achieved in the entirety of FY '24. We saw a strong uptick in consumption during the quarter, and this positive momentum has continued in January as well. Retail rentals for the first 9 months of FY '25 exhibited a 21% year-on-year growth, reaching about INR 1,470 crores. Concurrently, EBITDA for this period was up by 22% year-on-year at about INR 1,511 crores. Trading occupancy continues to build a strong momentum, reaching 91% in December '24, up 87% from March. Our newly launched malls are ramping up at an impressive pace, contributing significantly to this growth. Phoenix Palladium Ahmedabad achieved a strong trading occupancy level of 97% in December '24. Phoenix Mall of the Millennium Pune has reached a trading occupancy of 91%. And Phoenix Mall of Asia touched a trading occupancy of 81% in December 2024. Moving on to the office business. As of December 2024, occupancy across our operational office assets in Mumbai and Pune stood at 70% with average rent at around INR 112 per square foot. During the 9 months FY '25, we completed leasing of about 1.75 lakh square feet in the currently operational offices. During the quarter, our commercial office income grew by 7% to INR 53 crores, and EBITDA was at INR 33 crores, which was up by 17%. For 9 months FY '25, income was recorded at INR 158 crores, up 12% and EBITDA grew by 22% to INR 98 crores. Income and EBITDA growth primarily resulted from increased license fees due to higher billing from new leases and rental escalations, coupled with improved cost control measures. We are pleased to announce that Phoenix Asia Towers Bangalore has received the occupation certificate and will be -- we will see our clients who are currently under fit-out commencing operations from their fantastic offices soon. Pre-leasing activities have commenced for Phoenix Asia Towers Bangalore and Phoenix Millennium Towers. We've cumulatively leased about 110,000 square feet across these assets. We still await the completion of Millennium Towers Pune, post which we expect the leasing velocity to improve -- to accelerate. Looking ahead, we also anticipate the completion of One National Park, our offices in Chennai during 2025. Our office developments in Pune, Bangalore and Chennai will take our total commercial office portfolio to nearly 5 million square feet. Moving on to our hotels. A key element of our strategy this year has been a deliberate focus on optimizing the ADRs even if it meant potentially moderating occupancy levels. This strategy has proven particularly successful with our flagship property, the St. Regis Hotel Mumbai. Our flagship hotel, the St. Regis continues to lead the market, achieving a stellar 11% increase in ADR at about INR 22,343. This reinforces our pricing power and the premium positioning of our hotel. During Q3 FY '25, we achieved an impressive 11% increase in ADR while maintaining a healthy occupancy rate of 84%, a marginal 2 percentage point improvement. For the 9 months FY '25, ARR and RevPAR at the St. Regis Mumbai grew by 9% and 13%, respectively. Income for Q3 FY '25 across the portfolio, at St. Regis Mumbai was INR 148 crores with an EBITDA of INR 72 crores, representing healthy EBITDA margins at about 49%. The Courtyard by Marriott, Agra has delivered excellent performance with occupancy at 83% and a strong 21% growth in ARR. This again reflects a sustained recovery in domestic and inbound tourism. Revenue from F&B and banqueting saw a strong growth of 13% during the quarter. Supported by the growth in RevPAR and F&B, total income for Q3 FY '25 grew by 16% to INR 20 crores with a strong EBITDA margin of 37% at the Courtyard by Marriott, Agra. A quick snapshot about our residential vertical. For the 9 months FY '25, our residential business achieved gross sales of INR 135 crores and collections of INR 165 crores. The average sales price across our 2 residential assets, One Bangalore West and Kessaku in Bangalore is approximately INR 26,100 per square foot. We currently have about 380,000 square feet of ready inventory, which we expect to sell in these 2 projects in the coming years. This brings me to the end of the operational update of our businesses. And I would now like to request Kailash, our Group CFO, to take you through the financial performance.

Thank you, Shishir, and good morning, everyone. Let us begin with the financial performance of our stand-alone businesses first. The P&L on a stand-alone basis, which is only the -- I mean, Phoenix Palladium and some small part as an office component. For Q3 FY '25, income from operations touched to INR 127 crores, a 6% increase over the same period last year. EBITDA for the quarter stood at INR 81 crores, increase by 5% at a margin of 64%. Moving to the consolidated businesses. Consolidated revenue from operations for Q3 FY '25 was at INR 975 crores with an EBITDA of INR 553 crores. For the 9 months ended December '24, consolidated revenue was at INR 2,797 crores, up by 5%. And EBITDA was at INR 1,602 crores. Our core businesses, retail, office and hotel has generated INR 1,601 crores, so almost 100% of the profit is coming from primarily from the 3 businesses. On the cash flow, let me update you on the cash flow, CapEx, liquidity and RevPAR. The net cash generated from operational activities for FY '25 -- for 9 months FY '25 was INR 1,506 crores. And for Q3, it was INR 506 crores. To provide further context, after adjusting for interest and taxes paid and excluding, of course, the resi business, the operating cash flow was INR 380 crores, up 12% for the quarter 3 FY '24. Capital expenditure for 9 months FY '25 was at INR 1,758 crores, which includes acquisition of 3 assets, namely the Maland, Coimbatore and Chandigarh. Total amount is INR 965 crores and the total construction cost is around INR 793 crores. As on December '24, the liquidity position, so total cash was available for the future is INR 2,074 crores. Compared to March 2024, our group level gross debt increased marginally by INR 25 crores and stood at INR 4,391 crores. so INR 4,391 crores. Our group level net debt position post the cash reduction is around INR 2,317 crores as on December 2024. We reduced our average cost of borrowing to 8.64%, which is around 20 bps reduction as compared to the last year. And we remain committed to the future optimization of our debt cost. So we continue to churn our debt portfolio based on the availability. To secure our long-term growth, we have strategically acquired 6 land parcels totaling to around 53 acres over the past 2 years, and we have now pipeline visibility up to the 2030. Our strong balance sheet remains a cornerstone of our growth strategy with a net debt-to-EBITDA ratio at just 1.1 and provides ample headroom for strategic expansion. Our growth trajectory remains strong and well defined with plan to double our operational annual portfolio by 2030. We are systematically executing on our pipeline, ensuring long-term value creation for stakeholders. Leveraging our strong balance sheet, we are committed to deliver our under construction projects on time and deploying capital judiciously to expand our portfolio. This brings me to the end of the financial performance update and the liquidity position. We can now start with the Q&A session. Thank you.

[Operator Instructions] The first question is from the line of Puneet from HSBC.

My first question is if you can talk a bit about the non-retail part of the business. There seems to be a bit of slowness in commercial leasing on the residential sales, especially given the environment. Can you talk about what you're doing to accelerate those sales and leasing?

Puneet, this is Shishir. Thank you for your very relevant pertinent question. Let me talk a little bit about the office sales first. We -- across the country, we are seeing the demand to grow for office space leasing. We have -- in Bangalore, as I mentioned earlier in my communication, we have just recently received the occupation certificate. And we have -- we now see a lot of interest going up there. Also, I want to talk a little bit about course correction. While we were building all of these offices, we came to realize that it was very important to get the front office grade A best-in-class positioning right. And in that context, we have now gone and created some significant experiences at the office, the amenities that we have created, executive lounges, meeting room facilities, flex spaces for our occupants over there, fantastic F&B options within the office development itself, including cafes, gym, I would say, community spaces. All of these were part of the course correction that we did when we started looking at what competition was all about. And in the market of Pune and Bangalore, we realized that the competition was all focused on IT and IT spaces. And for us to create a niche and carve-out and attract the right clientele, it was important to get this positioning and the amenities and the entire building specs upgraded. We have -- we commenced this enhancement about 6 months ago, and we have now nearly completed it. Very interestingly, we have recently got H&M's India office moved to their corporate office has signed up for space at Asia Towers Bangalore. And we've got some very good clientele lined up now. I think we are going to see the benefits of all of this in the coming 3 quarters. And we are going to see a very, very promising leasing velocity going forward. We've done the same course correction at Millennium Towers Pune as well, and we're very, very excited to see that this building has pretty much turned out to be the best-in-class new benchmark setting asset for that city. As I mentioned earlier, it's all about creating the right experiences we've learned from our -- we've learned the value of this enhancement and the creation of significant revenue at St. Regis in our malls, and we are taking those learnings and duplicating them across our office assets across the portfolio. Moving on to residential. Puneet, we have an inventory at the current pricing of approximately INR 1,000 crores. We are gearing up to expand that development with Tower 8, also getting launched perhaps in this -- sometime in this -- in the next financial year. We are very keen not to dilute the positioning. It's -- I guess your question is more about how does one accelerate the sales velocity. The trade is you drop pricing, you get a higher sales velocity. For INR 1,000 crores inventory in our books, we want to maintain that premium positioning and pricing. We want to straight through to the product. We do not want to disappoint the buyers who already have occupied spaces there. And we want to set right the positioning for Tower 8, which will get launched in the next fiscal year. So we are not seeing the benefit of dropping pricing to improve sales velocity.

Understood. That's helpful. And from the numbers, at least assume it looked like the net sales were actually negative. So are we worried on the cancellation or those are some routine ones?

No, no, no. This is just -- it's more of a timing issue. I just want to point out one more -- bring about one more point for you to understand. In 2018, our pricing was roughly at about INR 15,000 to INR 16,000. We have -- and as a conscious call, we have decided to inch it up. As I mentioned earlier in my communication, we are currently at about INR 26,100 or thereabouts per square foot is the current pricing. And we've really instead forward. We've set a new benchmark. I think it's amongst the highest pricing in that micro market or across the city, in fact. We strongly believe in the strategy, and we know that it will pan out well in the long run for us.

Okay. Got it. And second part is on the retail side, right? I mean, I guess, 1.5 years back, you had said that retail consumption should on a same-store basis grow between high single digit to low double digits. When are we likely to see that? And what needs to be done for your existing free 2020 portfolio? Any lease-ups acquired there?

Yes. So I think in the older malls, it's -- again, I want to go back a little bit into history, and let's look at the period of 2017, 2018 and 2019. Across the same portfolio of assets, which you are talking about the earlier older portfolio, in that period of 2 to 2.5 years, we had seen consumption kind of plateau. And this is cyclical in our opinion. When I say cyclical, it's not economic cycle. It's cyclical because brands kind of need to be enhanced, the product needs to be enhanced. And after -- in 2018, 2019, we took up the significant exercise of premiumization, category upgradation, bringing more bridge to luxury brands in. And in the subsequent years, 3, 4, 5 years, we have seen how consumption has grown. So it's -- we are now, again, at that same point where all of these assets, we need to be working on premiumization, category upgradation. And of course, optimizing the store size, introducing newer brands. We are very excited about Burska opening up at Phoenix Palladium. I think it's completely -- it's a new brand for this market, and it's a much anticipated brand by our consumers. So I would say it's the same strategy. Our teams are working on it. We have a lot of confidence on how this is panning out from our ongoing discussions with retailers. I think just let's look at the performance of Mall of Asia and Mall of the Millennium, where we've created more efficient layouts and optimized store sites to accommodate new brands. We've given more space to performing retailers. There are newer categories that have come in. F&B, we've increased the allocation of area. We brought in more fine dining, cafes, bars, F&B densification on multiple floors, creating that whole F&B village or eclectic village at Pune. We've seen how strong the performance is now at primary entertainment centers, and now we have multiple FECs across the location, creating these indoor social venues, adding smaller but high-density trading stores like watches, cosmetics, electronics. So this is a strategy that we have, and it is something which is in execution. And it's very routine to our business. You are going to see in the retail space in any mall, there is going to be a plateau every, let's say, 5 to 6 -- 5 to 7 years in consumption, and you have to take all of these steps for consumption to grow and take it to the next level.

Understood. That's helpful. And thirdly, anything more in terms of pipeline for new business development? And when should we expect start of work in Thane, Coimbatore and Kolkata residential launch? That's it from my side.

Okay. So clearly, this has been a significant year for us. We've really committed to growing the retail portfolio and the retail, office, hotel and even the residential portfolio, right? So for now, our plans indicate that Thane is going to see a retail GLA of about 1.3 million square feet, plus we have additional FSI of another 2.5 million square feet. And we are currently working on the plans to identify what is going to be the best asset classes to develop over and above the mall. Similarly...

When you start building this Thane mall?

I beg your pardon?

When do you start work on Thane mall?

We are currently in the stage of approvals, et cetera. And we hope that during this calendar year, we will be able to break ground once we get all our approvals in place. Unlike earlier, Puneet, we now go to the very last detail on all design development before we break ground because we see once you break ground and efficiently and quickly build it out, I think that's the most prudent way to allocate capital and see the best returns. Continuing on, Chandigarh is going to be another 1.3 million square feet mall. And again, we have additional FSI potential over and above, which is unlimited. So we are looking at perhaps a fantastic hotel over there as part of the mixed-use development. Coimbatore is going to be, again, 1 million square feet of mall space. We have at our Phoenix Market City location as part of that mixed-use development in Bangalore, we have already planned the expansion of about 600,000 square feet, and that's -- is ongoing. So it's been a significant year for us in terms of acquisitions. And we continue to evaluate opportunities. As I mentioned -- as I've always mentioned to you and our other investors and shareholders and analysts, we expect to launch at least 1 million square feet each year from 2027 onwards as well. And we are well on to deliver on that pipeline that we had anticipated by FY 2030. And also, you had a question on resi in Kolkata.

Yes.

So one [indiscernible] is the product, that's the name of our product. We expect to launch it in towards the middle or end of Q1 of FY '26, and work is commencing over there already.

[Operator Instructions] We'll take the next question from the line of Biplab Debbarma from Antique Stockbroking.

First question is on the -- I calculate normally the rental income divided by the consumption of your mall portfolio. Typically, it is 14% to 15%, but this quarter, it was around 12.7%. Just trying to understand, should we read anything into this? Or does it indicate that we'll see rental income growth for the ratio to reach to 15%?

So this is a great thing. It's a significant opportunity for us, Biplab, and I'm glad you asked this question. In any good well-performing mall where you are seeing, let's say, INR 1,200, INR 1,000 crores plus of consumption annually, at an average, retailers' ability to pay rent is in the range of about 15% to 16%, considering that their costs remain pretty much fixed and the margins continue to improve as consumption reaches that INR 1,000 crores of INR 1,000 crores. So there is a significant opportunity. And we don't need to do anything to take our rental income up. It's just a trailing effect. You will first see consumption growth. And then in the subsequent quarters, you will start seeing rental growth.

Sir, second question is on the new Teladyam area, the expansion area. So has it been fully leased? And by when should we expect the numbers from this new Teladyn area?

Yes, it's about 90% leased. We are holding on to some space for -- because towards the -- as the retailers commence their operations there, there is the opportunity to extract premium rentals from the last remaining space. There is more than enough demand for us to reach 100% very -- as soon as we decide. But the effect of this, you're going to start seeing perhaps from this first quarter of the next financial year. It's very exciting because it's been very, very well received. a brand like Uniqlo when they opened up over there. We had underwritten our rental model on -- at a sale or consumption of about INR 8 crores to INR 10 crores or thereabouts. In December, the consumption was hovering close to INR 20 crores out of that one single store, which is unheard of from any anchor. So we are very excited about the future and the potential of the Phoenix Palladium expansion, which is about 250,000 square feet. And also, the product is incredible, what we are creating there. The 2-level F&B village is going to really become the hub for leisure, entertainment and F&B, which sits above -- over and above all the retail that we've created there.

And my final question is on the -- we have been reading slowdown in urban consumption everywhere. There is some kind of negativity. How do you, sir, you see consumption in the next, say, 1 year? Can you give us your thought on that?

Well, if we go by how January has panned out for us, it's been extraordinary across the portfolio. So I can't crystal gaze on how the consumption will be for the rest of the year, but we are very, very confident that we're going to continue to see significant growth in consumption. And that's not just coming out of natural -- I mean, there are -- it's organic, but it also requires -- we are putting in efforts on introducing new intellectual property and marketing events to boost consumption. For example, the Black Friday sales at the end of November, which was a 3-day event, this was an important factor this year and reviving consumption growth in the lean period, which comes between Diwali and end of season sales in December. So we identify these dips in consumption, and we curate experiential events, which boost consumption during that period. And this is something that we work very closely with all the brands to make it very, very successful.

[Operator Instructions] Ladies and gentlemen, as there are no further questions, thank you, members of the management. On behalf of the Phoenix Mills Limited, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.

Thank you.

Thank you.