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

Ladies and gentlemen, good day, and welcome to the Q1 FY 2027 Results Conference Call of The Phoenix Mills Limited. [Operator Instructions] Please note, this conference is being recorded. At this time, I would like to hand the conference over to Mr. Varun Parwal, thank you, and over to you, sir. .

Thank you, and good morning, everyone. It is a pleasure to welcome you all to discuss our operating and financial performance for the first quarter of fiscal year 2027. I'm pleased to share that we have made a strong starter year with broad-based growth across our core businesses. Consolidated revenue grew 13% to INR 1,075 crores and operating EBITDA grew 14% to INR 642 crores. Our core revenue, that is revenue from our annuity businesses grew 17% year-on-year to INR 1,033 crores. while EBITDA increased 19% year-on-year to INR 649 crores. At Phoenix, we continue to build integrated destinations where people choose to shop, work, live and align -- and I think this interconnected model is once again reflecting in both the resilience and the quality of our growth. There are 3 messages that I had like to leave you with this quarter. First, our operating momentum remains strong. And importantly, it is broad-based across every 1 of our businesses. Second, our cash generation remains healthy, and our balance sheet remains conservative and this is even after we have funded our ongoing CapEx and completed pending land payment for Chandigarh during the quarter, which speaks to the underlying strength of our operating cash flows and our disciplined approach to Tela location. And third, the next phase of growth is now clearly approaching. Several of our developments and expansions are expected to become operational through 2027 and mid of 2028 while our recently completed offices continue to move steadily towards higher occupancy and billing. So we have good visibility on the growth ahead. With that, I will now hand the call over to Rashmi to take you through our retail portfolio comments. Over to you, Rashmi.

Thank you, Varun. Good morning, everyone. I'm pleased to share that our retail portfolio delivered an outstanding performance in Q1 FY '27 with robust growth across all our key operating metrics despite no new mall area additions during the quarter. We continue to witness strong momentum in retailer sales, rental income and trading occupancy. Refitting the strength of our assets, the successful execution of our leasing strategy and sustained consumer demand across all our malls during this quarter. In Q1, rental income grew to INR 595 crores, increasing by 17% year-on-year, while EBITDA stood at INR 625 crores, also growing at 17% year-on-year. Consumption for the quarter stood at INR 4,730 crores, representing a strong 32% year-on-year growth, while like-to-like consumption across the portfolio grew by 24%. Growth was broad-based across categories and geographies. Apparel and accessories, which account for 60% of our trading area by 24%. Jewelry grew by 55%, electronics grew by 61%. What is particularly encouraging is the continued strength in F&B and experience-led categories. Growth of over 20% in the F&B and entertainment categories combined reflects sustained consumer engagement in the experience-led spending. Underlining our strategy of introducing new experiential concepts such as Burma Village at Phoenix Palladium. Over the last year, we have consistently spoken about our strategy of repositioning select mature assets by upgrading the tenant mix and enhancing the overall customer experience. The rebranding and relaunch of Phoenix MarketCity Pune as Phoenix Avenue of Stars reflects its evolution into a more premium experience led retail destination with an upgraded facade, refreshed interiors and enhanced brand mix and the introduction of bridge to luxury and super premium brands. The center has significantly elevated its market positioning and strengthened its appeal amongst the city's affluent customers. Marquee brands such as Uniqlo, Victoria Secret, ethos, Samit, HUGO, IKEA andseveral others are already operational while several other brands currently under fit out. The response from both customers and retailers has been highly encouraging, with the impact visible in the very first quarter. Consumption is up by 29% year-on-year, trading density up by 26% and rental income reaching INR 60 crores, up 13% year-on-year. Likewise, at Phoenix MarketCity, Bangalore, owing to the repositioning initiatives and addition of new marquee brands, we are seeing a positive impact on both consumption and rentals, which are already up by 22%, INR 540 crores and 17%, respectively. In fact, both the Pune and Bangalore assets are operating at 89% occupancy, and we are yet to realize the full potential of our repositioning efforts at both these assets. We are also witnessing similar positive outcomes across our other assets, where efforts made over the last few quarters are continuing to translate into measurable operating performance. These centers have delivered double-digit growth in both consumption and rentals. Over the last 12 months, we launched approximately 390 new stores, introducing several leading international and domestic brands, including Uniqlo, Lego, Rolex, cost, Bershka, Victoria Secret, IKEA, Coach, Sephora, Michael Kors and several others. These additions are enhancing the overall performance of our assets. Minimum guaranteed rentals across our portfolio continued to grow at double-digit rates, while revenue share income is also growing at a healthy pace. During this quarter, we completed over 300 leasing transactions covering nearly 1 million square feet across both operations and under construction assets. With regard to our upcoming assets, we are approaching 90% leasing at Phoenix Grand Victoria Calcutta, 50% leasing at Surat. Our expansion projects at Phoenix Palladium and Phoenix MarketCity, Bangalore Phase 2 are already more than 50% leased. Our other upcoming developments in Thane and Chandigarh and Coimbatore are all witnessing positive traction from the retailers. From an operating standpoint, we continue to remain disciplined in our cost management. Retail EBITDA grew by 17% to INR 625 crores, broadly in line with rental growth supported by operating discipline and healthy recoveries. As we look ahead, we remain confident in our ability to drive superior growth through active asset management continued premiumization strong leasing execution and disciplined capital allocation. With a high-quality portfolio, a strong development pipeline and deep relationships with leading retailers in India and international retailers. We are well positioned to continue delivering sustainable value for our shareholders. I will now hand over the call to Varun to take you through the next set of highlights.

Thank you, Rashmi. I will now take you through the performance of our office business, followed by a brief update on quarters and our under construction assets. Over the last 2 years, we have expanded the scale and reach of our office platform from around 2 million square feet across Mumbai and Puna in 2024 to nearly 5 million square feet across Mumbai, Puna, Bangloreru and Chennai, with 3 Grade A offices delivered during 2025 in 3 different cities. Each of these office assets is integrated within our destination retail-led campuses, combining workplace convenience with the vibrancy and amenities of a mixed-use environment. Our proposition that continues to resonate well with leading corporate acquires. During the quarter, the leased occupancy for the offices improved to 72% as of June 2026 from 70% on a lower base. Based on the leasing achieved and the discussions currently underway we have clear visibility and confidence for lease of [indiscernible] towers and 1 national park in Chennai to also progress towards 90% by the end of FY '27. As a typical in the office business, leasing lease billing and income recognition by a few quarters. So this buildup in leasing ship translate progressively into higher rental income and stronger operating leverage. For the quarter, our offices generated income of INR 75 crores, up 44% year-on-year and EBITDA of INR 42 crores, up 31% year-on-year. Rent paying occupancy was at 42% for the period ending June '26, and this rent paying occupancy should catch up to the current leased occupancy of 72% by March 2027. So we should continue to see growth in income and EBITDA going forward for the offices and over the next 3 quarters as well. Turning now to our hospitality business. The portfolio delivered a strong start to FY '27, despite a tough macro environment for the hotel business. Income for the quarter increased by 18% year-on-year to INR 145 crores, while EBITDA grew by 19% to INR 62 crores. The same crises Mumbai continues to lead the performance with income and EBITDA growing by 19% and 20%, respectively. Let me now turn briefly to our government pipeline, which is where the next phase of our growth becomes visible. 2027 is shaping up to be an important year for us with a cluster of assets moving from construction into operation. On the retail side, we expect to operationalize 4 new additions to our portfolio. This includes our 2 new destinations, Phoenix Grand Victoria in Kolkata and Phoenix Surat, each with about 1 million square feet of retail. Further, we also expand our existing portfolio grid Phoenix Market Bangalore and Phoenix Palladium. Alongside these, we have also offices in Wafi Banglore of around 0.4 million square feet and the 400 key grade holders both in if is forming a part of our Phoenix market Banglore Super campus. To acutes, we also expect to launch our new residential developments in Kolkata and Banglore by the end of 2026 or early '27. Looking beyond '28, our 3 large retail lend developments, Thane, Chandigarh and Coimbatore continue to move steadily through execution with their completion targeted by Further, we have also secured approvals for Phase III of the expansion at the Wafi campus and several words should commence shortly. Taken together and combined with the leasing momentum today that Rashmi spoke about. This pipeline gives us clear visibility into the next phase of portfolio growth, taking our rate platform towards [ 8 ] million square feet in as well as having complementary asset bases in and around or on top of the today moments. With that, I will now hand the call over to Kailash who will take you through our essential business financial performance and capital allocation. Over to you, Kailash.

Thank you, Varun, and good morning, everyone. I'll take you through our residential comments followed by group financial position and capital allocation during the quarter. Group residential booking for Q1 was INR 64 crores with a collection of INR 51 crores. As of June '26, we had approximately 1.5 lakhs square feet of completed inventory available for sale through our OVW and Casa. This has been followed by a healthy performance in July 2026. We continue to approach residential development selectively as a capital-efficient source of cash flow and by which complements our NT businesses. We booked almost INR 64 crore sales in the Q1, and we also have the -- some agreement, which is to be completed to INR 20 crores from coming from the last year. So total INR 84 crores is likely to reflect in the Q2, which has already been done till 30th June. At the group level, Q1 FY '27 reflects broad-based growth across our core businesses. Consolidated revenue increased by 13% year-on-year to INR 1,075 crores, while operating EBITDA grew by 40% -- 14% to INR 642 crores with an EBITDA margin. Net profit after share of associate and minority interest increased by 23% to INR 297 crores. Turning on the cash generation. which once again remained strong. Operating free cash flow grew 20% to INR 602 crores net of interest with our core businesses, contributing to INR 584 crores an increase of 31% year-on-year basis. This gives us a strong foundation to fund our development pipeline while maintaining balance sheet. Capital expenditure during the quarter was INR 1,085 crores. Of this INR 314 crores has gone to the construction and INR 771 crores has been deployed towards the land acquisition and development rights. The larger part of this reflects INR 716 crores paid to Kamada towards our land at Chandigarh, which was a balance payment effectively, which we have announced last year. Importantly, this means we are now developing Chandigarh wholly owned project of PML, and we have just started excavation for to this side. As of June 2026, gross debt stood at INR 5,658 crores and net debt of INR 3,658 crores. effectively carrying almost INR 2,000 crores of the cash in our balance sheet. The net debt-to-EBITDA remained engility at 1.3x. Importantly, the increase in borrowing during the quarter was directly toward the asset under development even as debt associated with our operational assets actively. Looking ahead, our priority remains unchanged, disciplined execution, driving sustainable growth in earnings and cash flow delivery of our development pipeline. -- while maintaining prudent leverage and adequate liquidity. With this, I think now we open the floor for the Q&A session. .

[Operator Instructions] The first question comes from the line of Puneet Gulati with HSBC.

Project in Kolkata and...

Puneet, could you please repeat your question?

Can you hear me?

Yes, we can hear you now unit.

Okay. Great. My first question is with respect to the plan to launch Kolkata and the second phase of Bangalore's residential project. what sort of product are you envisaging for Kolkata? And now you're talking of early 2027, what's driving this delay in launch? .

So I think, Puneet, both products at Kolkata and Banglore as premium residential projects. especially if you look at Bangalore, we have seen phenomenal demand for the product and the location and amenities that we have created. And during this quarter, we were actually able to sell at an average price of INR 36,000 per square feet that is 50% higher than what we were selling back in 2024 or I mean, double of what we were selling back in 2022. So I think if I just talk of Bangalore first, there is a very strong demand for the product and the community that we have created. And I would say more than the delayed time line just accounts for time it would take for approvals and RERA approvals, et cetera. So it's more indicative, right? It's not like there is a delay or something. And I think same for Kolkata as well, I think we are looking at replicating the experience we have seen with One Bangalore Western Kessaku, wherein we have a premium ceded community and the first of its kind in a city that has been started off luxury residential projects. .

And can you give some sense of realization there an area that you will finally end up launching?

So I think -- sorry, you were talking about Kolkata or Banglore?.

So Puneet, total area is likely to be around 1.2 million square feet at Kolkata and the launch price could be in the range of -- I mean, right now, I don't have an exit number, but could be around INR 30,000 plus/minus 2 percentage.

Okay. That's helpful. And second, on the -- even on the Bangalore P&C expansion to schedule to come at '26. Now that's coming in '27, 107,000 square feet. So want to read that?

It's not -- I think what we have -- we are adding not just the third floor -- but within the mall itself, we have undertaken significant renovation and the change in tenant Rashmi spoke about earlier. That in itself has been very disruptive per se, to the entire customer experience. And we thought that at just a bit more prudent to stagger it Taean trying to do everything at once. So now in Bangarole as well, occupancy has moved back up to 89%, UNIQLO and the other retailers have opened up and several others are under fit out. And this floor on this additional float that we are adding in Bangalore entirely and F&B oriented flow. So we have 30 plus restaurants that we are going to add in -- so I think therefore, the time line is -- and when we say '27, while it's a calendar year guidance, it's more like already...

Understood. That's very helpful. And lastly, while we completely understand the gap between consumption and rental here attributable to jewelry and electronics, -- but this time, the -- even on the fashion retail side, the consumption growth was very strong at almost 24%. Should 1 think of rental growth catching up to that sort of number into next few quarters or wishful thinking?

So as far as our rental growth is concerned, 50% of our portfolio is coming up for lease expiry over the next 3 years. So there's a substantial opportunity for us to capture the market range through all these the renewals and releasing for this portfolio. And Varun also mentioned all the new assets that we will be adding over the next few years. And so we see substantial rental growth coming from this addition that we're doing and the upcoming expiries. And as regards the correlation between consumption and rental growth, like you rightly mentioned, the difference between consumption and growth is primarily driven by the mix of our category and commercial structure. And without jewelry and gold our consumption is at 25% and rent is at 17%. Now it's important to remember that our business is actually built on a partnership model with retailers. Our objective is not simply to keep maximizing rent growth in the short term. But we want to create an environment where retailers can grow their sales substantially. And then strong retailer productivity will it ultimately translate into stronger and durable growth. while you're seeing a growth, a lot of the brands in the fashion category may have not reached threshold levels in spite of the growth that you're seeing -- our market rents are generally competitive. And as we see further growth in more of these brands reaching the threshold sales, we will continue to see higher productivity on the variable revenue share side of the rental income as well.

[Operator Instructions] The next question comes from the line of [ Pritesh Sheth with Axis Capital. ]

A couple of questions. Firstly, how should we look at these 8.7 million square feet of expiries over 5 years in terms of the mark-to-market or the upside potential that 1 can think of, right? Like where are the current minimum guarantees versus the market rents that you are on an average lender you are charging -- so just some sort of guidance on that on how should we see in the upside potential? .

Sure, Pritesh. I would avoid talking about what could happen in the future rates. But from what we have done in the past, I think we have used our enter expiries in a very conducive manner where not only have we been able to renew and retain the key tenants, but at the same time, create space to bring in new tenants and overall dry been growth by 20% to 30%. And that in itself has been a strong boost to what you see in terms of rental growth across the portfolio. We also use renter to create new experiential zones. Like today, if you look at Mall of Asia, within 3 years of opening, Mall of Asia has reached a trading density of INR 3,000 a square feet. I don't think this is a number that anyone in the community was expecting a more to quote. And it is even more remarkable catering, it has come within 3 years of the asset becoming operational. And we are using the learnings from Mall of Asia, Mall of cemenium and Ahmedabad to relook at the experiences and the brands that we can bring across our existing mature assets to drive further growth consumption and renter over there.

Sure. Got it. Just as a follow-up, a couple of questions there. I mean, out of this 8.7 million, how much proportion would be anchor expiries. And I'm sure this is at the current leasable area basis, will there be densification, which we would be targeting in this like 1 larger brand replacing multiple smaller brands and hence, area generating rent itself goes up. So if you can just help us with these 2 things, if at all, you can yes. .

So specifically on that question, I think it's asset to asset, where we feel that we can optimize the assets better by bringing a larger number of in-line brands. And I think this strategy is really asset based. And on your other question, we are seeing healthy growth in terms of consumption. And we expect to continue to see healthy growth in consumption going forward as well as we have a great pipeline of new brands that want to come into our assets. As you know, most assets are leased at close to 97%, 98%. And so this enables us the opportunity, both the consumption growth as well as the weakest pipeline that we have of retailers who are not in the center who want to come in. It gives us the opportunity to increase the renewal rents at much higher rate than market rates. However, we are also conscious of keeping the occupancy cost of the retailers because we want them to continue to profit as well in our modes. And I think Lucknow was a great example where you've seen some very positive growth over the last -- from the last year to this. If you look at it, Lucknow is a classic example because it's in the sixth year. And while the anchors have not come up for expiry as yet. We've seen a good rental income growth of 8% and consumption growth of 21%. We have the anchors coming up for expiry in 93 years in that center. .

Sure and just on anchors, like how much would the total proportion of this 8.7?

Pritesh, we don't have that breakup right now -- we also do think that it may be relevant because we are actually focused on category and ensuring that our more sort of complete one-stop destination, right? So we would actually try and look at what customers expect to find a leading mall and ensure that our malls are designed to capture the customers complete discretely wallet not just safe fashion or F&B, et cetera. .

Sure. And second on the future development. So I think in Slide 30, you have mentioned Lower Parel, we are adding 1.6 million square feet of offices. I thought Project Rise was million square feet office and a 3 lakh retail. So just 1 clarification on that. And what is the total potential at Pane and Chandigarh since whatever we are developing now is just part of the first phase. So yes, that is my last question. .

Sure. So I think in lower rate, we are building project price, but we also have an office tower address into project is that is coming up at the same time. So combined, the leasable area would be 1.5 million to 1.6 million square feet. And secondly, to your question on Thane, I think the overall potential on paper Pritesh should be in excess of 4 million square feet. But we believe that it may not be financially prudent to consume that and potential today at 1 go. So what we have planned is a red more development of 1.3 million square feet of older about 400 keys and an office with about 1.2 million square feet, with the potential to add a third tower to consume the balance. And in Chandigarh also, right now, what we are using is the base FSI potential and some extra petite that we have secured to build or retain more of about 1.5 million, 1.7 million square feet. And further, on top of the mall, we will have the potential to add 2 towers, but that's a decision that we will take later, whether we add 2 hotels or we add some other use to complement the retail development. .

The next question comes from the line of Kunal Lakhan with CLSA. .

Firstly, on -- it's been some time since we acquired land like we were quite active in 2023 and 2024 in terms of land acquisition it's been some time now. And considering the fact that some of the under construction assets will get completed in 2026 -- FY '27 and '28 and the kind of liquidity that we have, how should we look at capital allocation towards land going into '27 and '28. You have highlighted in your presentation about the markets that you'll be actively looking at. So just wanted some color on that. .

Sure. So at any point of time, Phoenix normally in discussion with 2 to 3 land owners minimum. And it takes time to materialize because it's a very complicated process from getting into the land and understanding the legality of it and diligence. So Definitely, we are looking at it very constructive way in acquisitions also, but we will be very judicious in selecting the land parcel in different cities or different locations. So hopefully, you will hear some news in the next few quarters. .

I think 1 thing also to look at from a capital allocation perspective is the fact that we are reinvesting within our assets to densify these developments. Now these densification projects are very IRR accretive for us because the land cost is already absorbed under the retain. So it's only the incremental cost of FSI and construction basis which we are building a hotel or an office or at times, both across our projects. Like Lucknow at this point in time, we are looking at adding on some additional retail and our hotel on top of the retail mall in Lucknow. So don't just look at what land we acquire or resecured but also to new assets that we are adding on top. Plus, of course, we haven't spoken about lower Parel, but we also have further development potential are lower today. And what we do are lower per year can at times equal to 2 or 3 land acquisition output effectively. And like Kailash said, we are very actively in discussions. So I think as and when we announce the new -- we are able to close and announce the new acquisitions I think you will get more visibility on the pipeline beyond 2030 as well. .

Understood. Understood. Second question is on the expiries that you spoke about, right, almost 50% of our -- more than 50% of our days coming up the old or expiring. Just wanted to understand like how do we approach this in terms of, like, say, how much of this area will get renewed versus, say, an active churn to maximize the trading density?

Yes. Typically, as far as the expiries are concerned, we start planning well in advance, for example, in indoor and Ahmedabad the first set of 5 lakh square feet expiries are going to come up after a year. So the team has already started strategizing and planning in terms of the renewal approach for these brands. And like I mentioned in the previous question, you also have to create space for some of the newer high-performing brands that didn't get an opportunity to enter the asset when we were opening the asset 5 years back. So you also have to have somewhat for churn strategy, which enables those brands to come into the asset as well. So there's really sort of deep thinking and strategy that goes into it well in advance, 1 year, sometimes 2 years in advance.

All right. I mean I mean, how do you approach this in terms of like you tend to look at, say, mark-to-market in rentals that you will be able to achieve or mark-to-market in terms of trading densities that you'll be able to achieve?

I think it's multiple factors. Really, it's multiple factors because ultimately, most of our assets are performing as an outlier in every city. -- there is that opportunity to command higher market rentals because of the way they are performing and the way the outlook looks for the next few years. And for most of our brands, fortunately, they see that their performance in our malls is the highest -- so they also partner with us in terms of our rental expectations because they know that they will continue to see sales growth in our center. And so really, it's multiple use study, the categories, you will study the brand performance. It will be the overall vision and strategy for the center that we have. for example, a big focus area for us going forward. In some of our centers, we are also converting the retail spaces into F&B to enable 15% to 16% of the area being F&B we want to take our Burma village to other centers. So I think it's not just about rent maximization. It's about an overall vision and strategy that we had, which is to each center, keeping the long-term objective, both for us as well as our retail partners in view.

Yes, sure, sure. And 1 last question from my side. In terms of -- we did phenomenally well in terms of our Bangalore asset in terms of growing the consumption as well as the trading densities. But I think outside of that, also, we've done fairly well with some of the other assets like Ahmedabad, the new Pune mall, where it's we've seen some healthy growth in consumption. How do you -- do you think like this kind of growth will continue on this new base for even these newer assets, like say, 20%, 25% consumption growth going into '27 and '28 maybe? .

So we are seeing that this growth is continuing in July. July, the indication is that it will end with over 20% growth. So we are seeing this trend continuing going forward in terms of a healthy double-digit growth in consumption. .