Mall operator Phoenix Mills Ltd shares tumbled into the red in the early session on Wednesday, July 9, after international brokerage Nomura initiated coverage on the stock with a 'reduce' call, given slowing growth and stretched valuations.
Nomura issued shares of Phoenix Mills with a 'reduce' call and a price target of Rs 1,400, indicating an 11 percent downside from the previous session's closing price.
The brokerage said it expects retail consumption at a slow 9 percent CAGR over FY25-27, compared to a ~40 percent CAGR over FY22-25 due to weak consumption growth at its mature malls: Phoenix Palladium, Four Phoenix Market City and Phoenix United Malls, which account for 60 percent of total consumption.
In order to improve consumption, the company is in the process of churning tenants and upgrading/replacing older or underperforming formats with "new age" and high-performing brands. "We think the benefits of this strategy will take some time to reflect," said Nomura.
Further, the brokerage added that retail EBITDA margins could come under pressure from tenant churn at mature malls and higher consumption mix from malls in Tier-2 cities, which would have relatively lower margins.
"The company plans to have 3 of its 5 new malls in Tier-2 cities in Surat, Chandigarh and Coimbatore by end-FY30 which we believe will likely be relatively margin dilutive. Given this backdrop, we expect consolidated EBITDA to clock a 14 percent CAGR over the next 5 years," said the brokerage.
Lastly, Phoenix Mills stock’s valuation at 24x FY26F EV/EBITDA (vs less than 20x pre-COVID) appears expensive. Its EBITDA estimates for FY26 and FY27 are 9 and 12 percent below Bloomberg consensus.
At 9.45 a.m., shares of Phoenix Mills were quoting Rs 1,511.7, down four percent on the NSE compared to the previous session's closing price.
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