PHOENIXLTD — earnings call

The transcript as filed. Every paragraph is addressable: its link names the page and the position it sits at in the call.

Prepared remarks

Moderator · Conference Operator

Ladies and gentlemen, good day and welcome to the Q1 FY20 Results Conference Call of The Phoenix Mills Limited.

The company will be represented by Mr. Shishir Shrivastava – Joint Managing Director and Mr. Pradumna Kanodia – Director (Finance).

As a reminder, all participant lines will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation concludes.

Should you need assistance during the conference call, please signal an operator by pressing ‘*’ then ‘0’ on your touchtone telephone.

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.

Shishir Shrivastava

Good morning, ladies and gentlemen.

We take immense pleasure in welcoming you all to the operating and financial performance of first quarter of financial year 2020.

We started the financial year on a strong note as all our business segments have delivered robust operating and financial metrics.

Phoenix MarketCity Mumbai, Phoenix MarketCity Bangalore and Phoenix MarketCity Pune were the top performing retail assets and key drivers of our retail segment performance.

Our commercial segment which is an integral part of our future growth strategy along with retail delivered a stellar quarter backed by higher occupancy at Art Guild house and Fountainhead Tower 1 in Pune, our newest commercial asset.

Construction work at Fountainhead Towers 2 and 3 is progressing very well.

Completion of these assets will further boost our commercial segment revenues.

Performance of our hospitality segment has been resilient backed by significant improvement in room occupancy at both our hotel The Phoenix Mills Limited

Moderator · Conference Operator

Thank you.

The next question is from the line of Adhidev Chattopadhyay from ICICI Securities.

Please go ahead.

Adhidev Chattopadhyay

Firstly, I would like to ask, in your presentation in the High Street Phoenix, given plans for around million plus square feet of offices, could you just elaborate more what are the plans there?

When we see the approvals coming in and under the new DP norms like what savings on FSI cost you may have there?

The Phoenix Mills Limited

Moderator · Conference Operator

Thank you.

The next question is from the line of Puneet Gulati from HSBC.

Please go ahead.

Puneet Gulati

Can you give some color on how is your renewal negotiations progressing for the upcoming releases.

What kind of spreads are you likely to see?

Shishir Shrivastava

In our existing operating mall portfolio?

Puneet Gulati

Yes, existing operating malls.

Shishir Shrivastava

Sure Puneet, will give you an update generally on our renewal schedule across the board.

In High Street Phoenix and Palladium, we have seen about 21% of re-leasing or renewal in FY20. So, 21% was the renewal in The Phoenix Mills Limited

Moderator · Conference Operator

Thank you.

The next question is from the line of Chintan Modi from Motilal Oswal Financial Services.

Please go ahead.

Chintan Modi

So, if you can share timelines for Ahmedabad mall and Fountainhead Tower 2 and Tower 3, when are they expected to be operationalized.

Shishir Shrivastava

Sorry, may I request you to repeat your question, I heard the first part on the timelines of Ahmedabad.

Chintan Modi

And Fountainhead Tower 2 and Tower 3.

Shishir Shrivastava

Fountainhead Tower 2 and Tower 3, sure.

So Ahmedabad target is first quarter of FY22 for completion.

The Phoenix Mills Limited

Moderator · Conference Operator

Thank you.

The next question is from the line of Abhinav Sinha from CLSA.

Please go ahead.

Abhinav Sinha

First question on the Capex side.

So, what is the run rate now for the ongoing assets and when do we see this peaking?

The Phoenix Mills Limited

Moderator · Conference Operator

Thank you.

The next question is from the line of Ayaz Motiwala from Nivalis Partners.

Please go ahead.

Ayaz Motiwala

My first question is related to the deal that you just announced.

I would just like to understand the valuation and the debt involved at that operating subsidiary?

Shishir Shrivastava

So, I would say the CA firms that have done the valuation for the subsidiaries they have gone on the basis of an earnings-based approach and arrived at the valuation.

Ayaz Motiwala

Arrived at the swap ratio which you announced the number of shares.

Shishir Shrivastava

Correct, the swap ratio of 6.27 shares of Phoenix Mills being issued for every individual share of Phoenix Hospitality.

For Phoenix Mills Ltd. valuation, they have applied, they have considered various approaches to arrive at the valuation.

There is of course what is already laid down by the guidelines there is a 6 months approach, there is a base ICDR approach and they have also taken in NAV approach.

So, they have broadly gone with the average of the NAV valuation which is much higher than the ICDR valuation.

They have taken an average of the 2.

The swap ratio finally has been derived on the basis of almost 15% plus premium to the current market value of Phoenix Mills shares.

Ayaz Motiwala

And there is a detail of the other holdings that this Phoenix hospitality has, but just as a clarification the current operating hotel in High Street Phoenix, is that a part of a separate company still?

Or it was under Phoenix hospitality?

The Phoenix Mills Limited

Moderator · Conference Operator

Thank you.

The next question is from the line of Dhaval Somaiya from Phillip Capital.

Please go ahead.

Dhaval Somaiya

So, the core portfolio PAT on a quarter-on-quarter basis if you see has come down from 1,348 million to 808 million, that is almost a decline of 40% while the revenue on a quarter-on-quarter basis from core portfolio would almost be in line, any specific reason for such a decline in PAT?

Pradumna Kanodia

No, so basically in Q4 of FY19 there was an exceptional one-time reversal of expenses which gave the optical number that the PAT has The Phoenix Mills Limited

Moderator · Conference Operator

Thank you.

The next question is from the line of Abhishek Bhandari from Macquarie.

Please go ahead.

Questions and answers

E-mail

[identifier removed] • www.thephoenixmills.com

Moderator · Conference Operator

Thank you very much, sir.

Ladies and gentlemen, we will now begin the question and answer session.

The first question is from the line of Abhishek Bhandari from Macquarie.

Please go ahead.

Abhishek

I had two questions.

If I look at your Chennai mall performance, somehow it has been very subdued for a very long period of time.

Do you have any plan of action to bring its performance in line with some of your other malls especially like Bangalore or maybe even the turnaround what you have seen in Kurla?

Shishir Shrivastava

If we actually look at the performance at Chennai, let us look at the trading density.

The trading density is roughly at about Rs.1,435 for the Marketcity and about Rs.

770 Palladium.

If we just look at the growth of consumption at Palladium, that is up about 36% for the quarter.

This growth of 36% is actually what our focus has been to really activate Palladium Chennai and try and get our trading densities to move up.

Logically, one would also assume that PMC Chennai with the changes that have happened there recently and with the entire area that we have uplifted and upgraded is slowly going to result in a further consumption growth there.

I would not say that Rs.1,435 is a low number for Marketcity alone but yes, there is room for improvement and we are working, we continue to activate the mall as we do across all our other malls, pretty much in line with where Phoenix Marketcity, Pune, which is the top performing mall of that city is at.

So, the focus The Phoenix Mills Limited

Company Secretary and · Research Analyst

And my last question is again on your residential part of business.

I think, this quarter there were no new net sales apparently but we do have kind of finished inventory sitting in our One Bangalore West and the new Tower 7.

So, are you guys looking at some kind of activation scheme or some kind of promotional program to probably accelerate some of the sales in those locations?

Shishir Shrivastava

Yes, there are several initiatives that have been undertaken there and in fact when we did launched Tower 7, we have seen a lot of interest there.

I think the number of initial bookings and all that we have received is also reasonable, it is a reasonably a good number.

We are going to shortly be undertaking some additional promotional and marketing activities there and some incentivization programs for the existing residents within our community there.

So, there are several initiatives that have been undertaken already.

Moderator · Conference Operator

Thank you.

The next question is from the line of Kunal Lakhan from Axis Capital.

Please go ahead.

Kunal Lakhan

So, just again a follow up on the earlier question.

Overall if you look at consumption growth across our malls barring Kurla, it’s been in single The Phoenix Mills Limited

Company Secretary and · Research Analyst

I had 2 questions.

One, I think somewhere in the call you have mentioned there will be new area coming for leasing in High Street Phoenix.

So, can you briefly explain what have you done and how is the area increased and what could be the incremental area, what you would have over let us say next one year?

Shishir Shrivastava

Abhishek, we have acquired some long term tenant’s areas in Phoenix House.

And the general idea, so we were not earning any rental from there.

It is a long term tenantswhich we have recently acquired now.

So, consequently the area under our control is increasing and we are looking at expanding the size of Sky Zone in that additional area on the floor above that we have acquired.

Company Secretary and · Research Analyst

What would be the size?

Shishir Shrivastava

About little over a 110,000 of thereabouts.

Company Secretary and · Research Analyst

The second question is Shishir; this is more on strategy part.

You guys have already seen 10 to 12 years of some of your mature assets.

I am sure there would have been some learnings from how to lease out to anchors and who could be the new anchors going forward?

So, could you help us explain in the new leasing what you are doing for the upcoming malls?

Are the anchors the same one’s what you had in the past or there has been a significant shift now?

And also related questions are the contract terms differing significantly from the once in the past?

The place where I am coming from if with these industry reports and all we get a sense that the good quality malls like yours are The Phoenix Mills Limited

And are the terms of the contracts also seeing some changes in terms of probably a higher minimum guarantee and a lower revenue sharing given that now, how to gradually a mall … The Phoenix Mills Limited

And by any chance could you able to reconcile this slide number 59 on the revenue part?

Shishir Shrivastava

Yes, Abhishek our sincere apologies on that one.

I think, there has been an error in our presentation not in our financial statements but in our presentation.

You are correct the number that we have shown over there as cumulative revenue recognition is incorrect.

Pradumna Kanodia

So, just what happened that the change of the accounting standard from percentage to project completion.

So, while the sales value remains the same but you would know that earlier when it was under percentage completion there was some bit of value that was recognized up to 2018 that got reflected again as a number when the presentation was being put up.

So, apologies on that.

So, Tower 1 to 6 the number should be lower by 130 crores while on the Kessaku the number is correct.

Moderator · Conference Operator

Thank you.

Ladies and gentlemen, on behalf of Phoenix Mills Ltd, that concludes this conference call.

Thank you for joining us and you may now disconnect your lines.