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Real estate is notorious for being cyclical, inconsistent and unpredictable. Yet, soaring above the ashes of chaos is Phoenix Mills .
A beacon of consistency, the Mumbai-based real estate developer has been buoyed by double-digit revenue growth and operating profit over the last five years. Impressively, the company's operating profit has grown annually at 20.5 per cent over the last five years, the fastest among all its peers in the S&P BSE Realty Index.
What's more, it is the only company among its peers to report a positive cash flow from operations in each of the last 10 years and also generate a sector-beating operating profit margin of 50.4 per cent as of the 12 months ending September 2023.
It's hardly surprising then that the market has taken a shine to Phoenix Mills, with its stock price up over 300 per cent since 2019.
Given the company's extraordinary flight in recent years, we decided to closely examine the nearly 120-year-old company.
The history of Phoenix Mills
Originally a textiles company, Phoenix Mills shifted its focus to commercial real estate only in the 1980s. Ignore the pun but the company's phoenix moment came when it used its land in Mumbai to develop a shopping mall. Even as of FY23, that mall's revenue share stood at a healthy 20 per cent.
Spurred by its initial success and India's rising retail consumption needs, the management has continued to focus on consumer-facing commercial real estate projects, including malls and hotels. Over the years, it has amassed India's largest mall portfolio, contributing to around 70 per cent of its revenue as of FY23.
Additionally, Phoenix owns and operates hotels and commercial offices, along with a housing project in Bangalore.
Maal-a-mall
Back in FY19, the company had set a target to double its mall property from 4 million square feet to 8 million square feet through a combination of accruals, debt and by raising equity from institutional investors through the QIP (Qualified Institutional Placement) route.
The company achieved this feat in FY23.
In addition to the two new mall launches in Indore and Ahmedabad, the recent surge in retail consumption has doubled the footfall over the last year. The increased traction helped the company record around 30 per cent growth in retail consumption over the peak year of FY20.
As a result, the rental income from existing malls grew almost 25 per cent over their peak in FY20 and continued to witness a record 90 per cent occupancy rate across its malls as of September 2023.
Exemplary growth metrics
The company's operating profit margin is on the rise
| Metric | TTM | FY23 | FY22 | FY21 | FY20 |
|---|---|---|---|---|---|
| Revenue (Rs cr) | 3099 | 2638 | 1483 | 1045 | 1941 |
| Operating profit (Rs cr) | 1563 | 1292 | 548 | 285 | 760 |
| Operating profit margin (%) | 50.4 | 49 | 37 | 27.3 | 39.1 |
| Cash flow from operations (Rs cr) | 1060 | 1356 | 781 | 432 | 739 |
| Debt-to-equity | 0.4 | 0.5 | 0.6 | 0.8 | 1.2 |
| ROE (%) | 10.3 | 19.7 | 4.3 | 0.8 | 10 |
| TTM data as of Septmenber 2023 | |||||
Diverse portfolio
The company is not reliant on malls alone.
It has a diverse set of properties, which came to the rescue in the COVID period when the company's revenue from malls was brutally halved in FY21.
At that point, the stable revenues from commercial offices and the sale of residential properties worked as a safety cushion. They made it possible for the company to remain profitable despite a fall in overall revenue.
Its hotel business, which was kneecapped during COVID, has also risen from the dead in recent years. The revenue from its hotel business has grown in double digits consistently, with record high occupancy and average revenue per room in the first half of FY24.
The road ahead
Phoenix Mills has shown exemplary growth in the last five years. But is it sustainable?
Let's look at the positives first.
It seems to be on firm footing, for now, riding on India's retail consumption boom. As per a 2023 report from Netscribes, a research firm, the Indian retail industry is expected to reach a market size of Rs 12 lakh crore, annually growing at 14.2 per cent till FY27.
The company also intends to expand its mall footprint, setting a target of 14 million square feet by 2027. The launch of a new mall in Bangalore in October 2023 and two new properties under construction in Kolkata and Surat is a step in the right direction.
Beyond its malls, the company will rely on its new hotel in Bengaluru, a residential project in Kolkata, and four new commercial office properties to be its key growth drivers in future years.
Though the future looks sunny, COVID exposed the weaknesses in the company's business model. The high capital-intensive nature of the business, changing consumer preferences and a slowdown in economic activities can hobble its growth.
To worsen matters, the company has a Valuation Score of just 3/10 and a Stock Rating of 3 despite remarkable growth.
Also read: Three rising star stocks
Disclaimer: This content is for information only and should not be considered investment advice or a recommendation.
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