Phoenix Mills Ltd

NSE:PHOENIXLTD

Earnings Call Analysis

Robust Growth and Expansion Plans at Phoenix Mills

In Q2 FY '25, Phoenix Mills reported operating revenue of INR 918 crore, marking a 5% YoY increase. When adjusted for the variable residential segment, revenue rose 22% to INR 870 crore. Retail sales soared 24% to INR 3,279 crore, while retail EBITDA jumped 22% to INR 495 crore. Total debt slightly increased to INR 4,379 crore, but net debt improved to INR 2,405 crore, maintaining a healthy net debt-to-EBITDA ratio of 1.1x. The company remains optimistic with expectations to double its operational annuity portfolio by 2030, driven by recent land acquisitions and a development pipeline through to FY '27.

Strong Revenue Growth Amidst Challenges

In the second quarter of FY '25, The Phoenix Mills Limited reported an operating revenue of INR 918 crore, a 5% increase year-on-year. However, when excluding its residential business—which can be more erratic in nature—the growth was significantly more impressive at 22%, bringing revenues to INR 870 crore. The EBITDA for this quarter reached INR 518 crore, representing a modest 2% growth overall, but a more robust 19% increase when adjusted for the residential segment, highlighting the strength in its core operations.

Retail Sector Performance

The company's retail portfolio demonstrated remarkable resilience, with retailer sales in Q2 FY '25 reaching INR 3,279 crore, up by 24% year-on-year. This uptick was attributed to the rapid ramp-up of new malls. Consistently, retail rental income surged by 22% to INR 474 crore, while retail EBITDA mirrored this growth, increasing by 22% and totaling INR 495 crore for the quarter.

Continued Momentum in H1 FY '25

In the first half of FY '25, retail sales escalated to INR 6,496 crore, marking a 25% growth year-on-year. The like-for-like consumption growth was also strong at 6%. Such performance underscores the resilience of The Phoenix Mills' retail operations, even as the broader market faces consumption challenges.

Managed Debt and Financial Health

The company reported a solid liquidity position of INR 1,974 crore as of September 2024 and successfully improved its net debt-to-EBITDA ratio to a healthy 1.1x. In addition, the average cost of debt was reduced to 8.67%. Notably, Phoenix Mills has controlled its capex effectively, channeling all land acquisitions through internal accruals, which reflects their commitment to financial discipline.

Concerns on Net Profit Margins

Despite the strong revenue performance, net profit after minority interest (PATMI) for Q2 FY '25 decreased by 14% year-over-year. This decline can be attributed to various factors including reduced liquidity, increased taxes, and adjustments for minority interests in joint ventures. Management highlighted that while underlying growth in core operations is promising, the benefits may take time to reflect in PATMI.

Positive Outlook on Future Developments

Looking forward, management is optimistic about the upcoming festive and winter seasons, expecting strong performance driven by the pipeline of new developments. The company currently has a robust plan to expand its operational annuity portfolio, anticipating it to double by 2030. Large-scale projects are in various stages, particularly in Thane, Bangalore, Coimbatore, and Chandigarh, which should reinforce their market presence.

Challenges and Strategies in the Entertainment Sector

Complexities remain in the multiplex and family entertainment center segments, which experienced declines in consumption due to fewer blockbuster releases. However, management noted that a robust lineup for the upcoming months could reverse these trends. They look forward to improving occupancy rates and consumption as new brands continue to enter their malls.

Conclusion: A Company Poised for Growth

The Phoenix Mills Limited shows promising signs of resilience with considerable revenue growth backed by effective debt management and strategic expansions. Despite current profitability concerns stemming from reduced net margins, the outlook remains positive, aided by strong operational fundamentals and development activities slated through 2030. Investors should remain cautiously optimistic, monitoring the execution of growth strategies in both retail and upcoming projects.

Earnings Call Transcript 2025-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to Q2 and H1 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 over the conference to Mr. Shishir Shrivastava. Thank you, and over to you, sir.

[Shishir Shrivastava, executive]

Thank you. Good morning, ladies and gentlemen. It's a pleasure to have you all here today to discuss our performance for the second quarter and half year ended September 2024. 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.

Let's start with an overview of our performance on a consolidated level. In Q2 FY '25, we achieved an operating revenue of INR 918 crore, a 5% increase year-on-year. EBITDA for the quarter reached INR 518 crore, up 2% year-on-year.

To provide a more accurate picture of our core business performance, we have adjusted the figures to exclude the contribution of the residential business, which is inherently variable in nature. Excluding the residential business, we witnessed a 22% growth in operating revenue, which reached INR 870 crore. EBITDA for the second quarter stood at INR 502 crore, up 19%. Similarly, for the first half of FY '25, adjusted for the residential business, operating revenues reached INR 1,742 crore, up 23%. And EBITDA for the same period was at a historic high of INR 1,027 crore, up by 20% on a year-on-year basis. This is the first time our EBITDA has reached the INR 1,000 crore mark, and we hope to see this trend continue and grow from here.

Moving on to our retail portfolio. For quarter 2 FY '25, retailer sales, that is, consumption for Q2 FY '25 reached INR 3,279 crore, up by 24% year-on-year, driven by the fast ramp-up of the newly launched malls.

On a like-to-like basis, which is excluding Phoenix Mall of the Millennium, Pune and Phoenix Mall of Asia, Bangalore, we saw consumption growth of 5%. Retail rental for the quarter grew by 22% to INR 474 crore. In line with retail rentals, retail EBITDA also increased by 22% to INR 495 crore for the quarter.

On a like-to-like basis, in Q2 FY '25, retail rentals and EBITDA both grew by 5% compared to the same quarter in the previous year.

For the first half of FY '25, the retailer sales reached INR 6,496 crore, up by 25% year-on-year. Like-to-like consumption growth was 6% for the first half of FY '25, again, excluding Phoenix Mall of the Millennium and Phoenix Mall of Asia from the mix.

Retail rentals grew by 26% to INR 958 crore. Overall retail EBITDA retail for H1 was INR 1,010 crore, up 27% year-on-year. On a like-to-like basis, retail rentals grew by 6% and EBITDA grew by 7%.

Phoenix Mall of the Millennium and Phoenix Mall of Asia, which have been operating for nearly a year now, have demonstrated excellent consumption growth, each approaching the INR 500 crore mark in the first half of the financial year.

Looking at category-wise performance. Jewelry was our top performing category for the quarter with a growth of 33% across the portfolio on a like-to-like basis. Gourmet Food and Hypermarket saw a growth 12% during the quarter. FEC and Multiplex declined by 15%, primarily due to fewer blockbuster releases during the quarter.

Moving on to the occupancy highlights. In September 2024, lease occupancy across our major malls was at about 97% and trading occupancy was almost at about 92%. And newer malls have seen a fast ramp-up in trading occupancy with Palladium Ahmedabad, which has achieved a strong trading occupancy level of 94% with the Multiplex commencing operations in Q2 FY '25.

Within almost a year since launch, Phoenix Mall of the Millennium has reached a trading occupancy of 87% in September and Phoenix Mall of Asia saw a trading occupancy of 78%. We also have substantial area under active fit-outs and both these malls are on track to cross trading occupancy of over 90% in the coming months.

Our future plans. We are committed to enhancing the performance of our existing malls through active mall management and exceptional customer service with a focus on bringing the best and the latest brands and elevating customer experience by adding more F&B and entertainment spaces.

We are making significant progress towards the launch of the retail block opposite PVR at our flagship property, Phoenix Palladium, Lower Parel, Mumbai. Retailers have commenced without activities and we anticipate operationalizing this 250,000 square feet retail GLA by the end of 2024.

Our development pipeline remains robust with approximately 3 million square feet of retail space currently under development and slated for completion by FY '27.

Further, I'm pleased to share that our Phase 1 of our new city center lifestyle destination in Thane will feature a destination retail development in the range of 1.2 million to 1.5 million square feet of leasable area. This is as per the plants which are currently under design development and we continue to have more FSI potential to develop other asset classes in subsequent phases.

With the recent land acquisitions in Bangalore, Coimbatore and Chandigarh, Mohali during 2024, we continue to build out a strong pipeline of retail-led mixed-use destinations going up to 2030.

Looking at our commercial offices business, as of September 2024, occupancy across our operational office assets in Mumbai and Pune stood at almost 70% with gross rentals averaging around INR 118 per square foot. During the first half of FY '25, we achieved gross leasing of approximately 150,000 square feet across our operational office assets.

For Q2 FY '25, income grew by 19% to INR 54 crore and EBITDA was at INR 34 crore, up by 31%. For the first half FY '25, income stood at INR 105 crore, up 17% and EBITDA grew by 31% to INR 66 crore. The growth in this segment was led by improved rent generating occupancy at Art Guild House, Mumbai and Fountainhead Towers in Pune.

Looking ahead, we have initiated pre-leasing activities for Phoenix Asia Towers in Bangalore. The construction of this asset is complete and we are awaiting the occupancy certificate.

We are also nearing completion of our offices in Pune, which are Millennium Towers and also in Chennai. Our office developments in Bangalore, Pune and Chennai will take our commercial office portfolio to nearly 5 million square feet.

Our hotels have delivered a stellar performance this quarter with the same features leading the way where occupancy improved by 3 percentage points to 85% for both Q2 and H1 FY '25 driven by increased corporate events and wedding festivities in the city. This led to a 15% growth in the average room rate to INR 17,320 and a 19% increase in the RevPAR to INR 14,694 for Q2 FY '25.

For the first half of the year, ARR and RevPAR at this asset grew by 7% and 11%, respectively. At Courtyard by Marriott, Agra, occupancy for Q2 FY '25 stood at 67%. The property achieved a 9% growth in ARR reaching INR 4,569 and a 5% increase in RevPAR to INR 3,044 during Q2 FY '25.

Looking at our residential business for the first half of FY '25, the business achieved gross sales of INR 78 crore and collections of INR 125 crores. The average sales price across our 2 residential assets, One Bangalore West and Kessaku, both in Bangalore, is approximately INR 26,000 per square foot. We currently have approximately 390,000 square feet of ready inventory remaining to be sold at these 2 projects. This brings me to the end of the performance update across our businesses. Here wishing you all a happy Diwali and a prosperous New Year.

I would now like to request Kailash to take you through the financial performance.

[Kailash Gupta, executive]

Thank you, Shishir. And good morning, everyone. Let's begin with the financial performance of our stand-lone business.

[Operator]

Sorry to interrupt, sir. Sir, can you come a little bit close to the microphone.

[Kailash Gupta, executive]

Okay, is it better?

[Operator]

Yes, sir. Please go ahead.

[Kailash Gupta, executive]

Let's begin with the financial performance of our stand-alone business. The Phoenix Mills on a stand-alone basis primarily consists of The Phoenix Palladium and a small component of offices at Phoenix House. For Q2 FY '25, income from operations reached at INR 116 crore, a 3% increase over the same period last year. EBITDA for the quarter remained steady at INR 72 crore with a margin of 63%.

Moving to our consolidated business. Last year, we realized significant revenue and profit from sale of ready inventory in our Bangalore residential projects. Additionally, the receipt of OC for Tower 7 at One Bangalore West boosted our revenue.

Adjusted for the resi business, consolidated operational revenue across the annuity portfolio for the quarter was INR 870 crore, growing by 22% year-on-year basis. Consolidated operating EBITDA, excluding resi business, grew by 19% Y-o-Y basis, reaching to INR 502 crore in Q2 FY '25.

Updates on our debt and liquidity position. I'm pleased to announce that PML credit rating was recently upgraded to AA positive and with a positive outlook, reflecting our growth trajectory and disciplined financial approach. As on September 2024, our liquidity position was at INR 1,974 crore.

Compared to March '24, our group level gross debt increased marginally by INR 13 crore to INR 4,379 crore. Our group level net debt position improved to INR 2,405 crore as on September 2024. The net debt-to-EBITDA ratio remained healthy at 1.1x, and we have successfully reduced our average cost of debt to 8.67% in September 2024. We remain committed to reducing debt and optimize our cost to debt ratio basically.

Notably, all of our recent land acquisition has been funded entirely through internal accruals. Just to give you the perspective, our total CapEx in the first half was at INR 1,380 crore, which includes the land acquisition of INR 740 crore and a construction cost of approximately INR 640 crore. The entire funding is done from the equity participation from CPPIB at INR 270 crore and the balance was funded through the internal accruals. So this shows the discipline -- kind of discipline which we are following on the business side.

On the cash flow. For the first half of FY '24, we generated a net cash flow of around INR 1,000 crore from operations. And during Q2 FY '25, we generated a net cash of INR 486 crore from the operations. To provide further context, after accounting the interest payment on our existing debt, our operating free cash flow net of taxes and interest was at INR 380 crore. Excluding the resi business, the operating cash flow for Q1 (sic) [ Q2 ] FY '25 stood at INR 378 crore, a 24% increase from the same period last year.

With the upcoming festive and winter season, we remain optimistic about our performance in the second half of the year. We have a strong development pipeline in place extending up to 2027. With recent acquisition in Thane, Bangalore, Coimbatore and Chandigarh, we now have a pipeline visibility going up to 2030, which we'll announce maybe very shortly. We expect to double our operational annuity portfolio area between now to 2030.

Leveraging our strong balance sheet, we are committed to delivering 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. Wish you all a very happy Diwali, and let's get into a Q&A session.

[Operator]

[Operator Instructions] We'll take our first question from the line of Puneet Gulati from HSBC.

[Puneet Gulati, analyst]

Congratulations on the nice ramp-up for your new malls. My first question is if you can give some color on what you're seeing in the first 25 days of this month. How is the start of the festive season and this one in terms of consumption levels?

[Shishir Shrivastava, executive]

Puneet, thank you for your question. This month has been a bit of a mixed bucket in terms of performance across the country with Chennai and Bangalore seeing the heavy deluge, we have seen a quite an impact on consumption, perhaps to the extent of about INR 20-odd -- INR 20 crore or so because of the rains itself. Mumbai, Pune seem to be pretty much moderate so far. But starting yesterday, with the 2 weekends of the festive season, we are quite geared up to see high footfalls and high consumption.

Also, as you are aware, even in times where one generally has been seeing a decline in sales across retail brands across the country, not just in our portfolio, we drive consumption slightly differently. And therefore, we've not seen a degrowth. We've only seen a positive growth. As we mentioned, like-to-like growth, excluding Mall of the Millennium and Phoenix Mall of Asia, Bangalore, like-to-like growth is in the range of about 7% to 9% averaging there. And this is for the month of October despite the rains in Bangalore and Chennai.

[Puneet Gulati, analyst]

Understood. That's helpful. Just a small observation here. In your other category for last quarter, there's a sharp 21% decline. I know it's a small part of your overall business, but what all does it capture?

[Shishir Shrivastava, executive]

What all does others capture?

[Puneet Gulati, analyst]

Yes, yes.

[Shishir Shrivastava, executive]

Others income would be -- typically would be parking income, marketing income and event space rentals, et cetera.

[Puneet Gulati, analyst]

Okay. Noted. And secondly, if you can comment upon you've done 3 acquisitions of late and some progress on Thane side as well. So Coimbatore, Mohali, Thane, if you can give some sense of what are the rentals on which you've underwritten the retail portfolio? And what is the total area you're looking to build there?

[Shishir Shrivastava, executive]

So I would like to put it like this that we are looking at -- our business plan is underwritten with conservative rentals, right? But despite that, I would say that by the third year of operation, we should be in the range of about a 14% yield on cost. We have underwritten the rentals looking at what are the rentals in competitive malls in that vicinity. And we've kind of just used that as our base approach, though we typically track maybe 15% higher than what the market average would be.

[Puneet Gulati, analyst]

Understood. Lastly, if you can comment on the progress on your office leasing side.

[Shishir Shrivastava, executive]

Office leasing has seen a good progress. As you can see, our EBITDA -- our gross revenue and EBITDA is up significantly compared to the previous year. We are waiting to get the OC in Bangalore. It's about 800-odd thousand square feet of GLA. We have transactions which are in place and we'll get executed soon after the OC for about -- I think about 200,000 square feet almost and a lot of discussions in pipeline. Historically, Bangalore has seen the highest ever leasing in the country in this first half in this financial year. And we are happy to see the traction find its way to our asset as well.

[Puneet Gulati, analyst]

Okay. And Pune side?

[Shishir Shrivastava, executive]

Pune is still under development. I think we may be about 6 months away from OC. So we are also actively in the marketing phase there. There's been a lot of site visits, a lot of RFPs, which are under discussion now, so we will report. As soon as we have confirmation, we will let you know what area has already been signed up.

[Operator]

Next question is from the line of Praveen Choudhary from Morgan Stanley.

[Praveen Choudhary, analyst]

Congratulations on, again, good results. I'm looking at just one number, and I'm trying to decode as much as possible. So please indulge if you can. So I'm looking at the PATMI number, which is net profit after minority interest. And when I look at last quarter, it was down 3% year-over-year. This quarter is down 14% year-over-year. Again, obviously, there is a residential angle to it. So 2 questions there.

One is, how should we think about the residential business margin for you? Is it a 5% margin business or 15%? And then the second thing is that you have given us, excluding residential EBITDA growth, I think, probably for the first time, would you ensure that you will continue to give? Or can you give retroactively before so that, that's a real way to understand the growth?

And the reason to -- there is a disconnect between these 2 because if you remove the residential part of the business, it's nicely growing the IP business, both in EBITDA and revenue terms. But as I said, in PATMI, even if I remove the residential part with some assumption of margin, it still shows year-over-year decline. So can you just help us reconcile that?

[Shishir Shrivastava, executive]

Okay. Praveen, I'm going to try and respond to a couple of questions and a few you'll have to repeat again because that was a long, long list of many questions. Firstly, yes, in Q1, we had disclosed the EBITDA numbers without excluding the resi business, and we will continue to do that as we've done in Q2 as well and going forward.

I just want to clarify that for us, the resi business, which -- and today, it primarily comprises of that balance inventory of about 350-odd thousand square feet, 390,000 square feet in Bangalore. Our margins are in the range of about 40% to 50%. So it's not a declining margin business for us. This is all ready inventory. We've already incurred all the costs there. Even when we are looking at the development in Kolkata, the residential development in Kolkata, the margins are -- would be similar in the similar range or maybe 5%, 10% here lesser than that. But it's not a 5% or a 10% or a 15% margin business for us.

Would you like to repeat your other questions?

[Praveen Choudhary, analyst]

Sure. Sure. Both are helpful information. I was not talking about EBITDA margin. I was thinking of net margin because one of the main question I have is your EBITDA growth is fine like-for-like or excluding residential, that's very strong. We are talking about PATMI growth, which is where, because of minority interest, maybe minority interest is growing very fast, those malls, which are JV projects, are doing very well. That's why there is a disconnect between the speed at which you're growing on the top line and EBITDA is not showing up in my net profit line. And I'm trying to reconcile it, and that's why I'm using that.

[Shishir Shrivastava, executive]

A few lines on what has impacted the net profit margin. One is our liquidity has reduced. So our other income from interest and investments, et cetera, has certainly reduced. The taxes have gone up because in many of our newer malls, we have -- we don't have any debt and -- or very nominal debt. So the tax impact is high. In the older malls, we have utilized accrued losses, so taxes have started increasing. So these are a few of the lines which have impacted our net PAT, if you were to look at it.

I didn't quite get the point on the JV businesses because we do consolidate all the numbers. We own majority, more than 50% in all of our JVs. So we are consolidating all the lines there. I don't think that -- but if you look at -- perhaps you're looking at after the minority shareholders' interest. So yes, there is -- in the case of the CPPIB JV, there is a 49% sharing of there. And in the case of our joint venture with GIC, there is a 33% share that they have. Having said that, I would also like to point out a very interesting fact here.

All of our operating assets, excluding the ones which are new where we have certainly built out all the remaining asset classes, but all of our assets which are currently generating INR 200-plus crore of revenue or of rental income or even EBITDA, they are -- these numbers are coming out of about 1 million or 1.2 million square feet of GLA. And all of them have the potential of additional FSI, which we are exploiting and we are constructing and building. And they will each become developments in the range of 3 million to 5 million square feet.

So you can imagine the potential growth arising out of these additional area, which is all being -- which are all annuity assets. For example, if you look at Phoenix MarketCity Bangalore, we have about 1.2 million square feet of retail space currently. We are adding another 500-odd thousand square feet. We have the Grand Hyatt Hotel coming there. We have the offices block coming there. Plus we've acquired the adjacent land, which once we are able to amalgamate, that will give us a further potential of another 2 million -- 1.2 million, 1.5 million, somewhere in that range.

So the incremental cost for developing these asset classes are very low because we own the land. Yes, you are paying for premium SSI and construction, but the return or the yield on all of this is going to be significantly higher. And all of this is playing out between now and 2027, where we've explained how our portfolio is going to grow. So this is an important fact that I would like you to bear in mind, which will obviously have a significant impact on our PAT going forward.

[Praveen Choudhary, analyst]

Makes sense. I mean, I guess the strategy is unquestionably correct. We also see that recent land acquisitions will ensure the visibility till 2030 in terms of newer malls and newer offices coming through. Some investors do ask, is there a gap between now and 2027? And probably that you were trying to answer that question by saying some of the FSI, you will exploit it.

But is there something you want to talk about between now and 2027 when either Surat or Kolkata comes through and after that, it looks very smooth that we can see some slowdown, meaning that there is -- the gap between the reported growth and the like-for-like growth will narrow, means they will be similar, which will reduce the overall growth for the company. And we understand the office coming through and we understand the Palladium extensions coming through, but still it won't be same as what we have seen in the last 12 months where you have 4 new malls coming in. Is there anything to fill up that gap?

[Shishir Shrivastava, executive]

Yes. So offices are all -- as you mentioned, offices are all going to be operational between, let's say, we should get the OC in about a month's time in Bangalore, 6 months' time for the first phase in Millennium Towers, another 4 months thereafter for the second phase of Millennium Towers. So incremental area -- and of course, Chennai as well. We have another 500-odd thousand square feet of offices in Chennai, which will come online.

We have Palladium, as I mentioned, another 250,000 square feet, which will be operational very, very soon. So over the next 24 months, I think every quarter, you're going to see maybe 250,000 to 300,000 square feet becoming operational of either retail or office. So I think that these are certainly going to help bridge the gap. There could be maybe a 1 quarter impact because of -- between leasing and trading. So one can -- but one can safely assume that there is a significant growth coming out of these, inorganically, through these expansions.

[Operator]

[Operator Instructions] We'll take our next question from the line of Parikshit Kandpal from HDFC Securities.

[Parikshit Kandpal, analyst]

Shishir, congratulations on a decent quarter. So Shishir, my first question is on consumption. So we have seen a decline of 4% in Palladium, 2% in Bangalore. So Pune also 5% and 3% Palladium Chennai. So I just wanted to understand if you can help us with some data points over the last few months. So how has been the revenue share and the minimum guarantee tracking? So is there a divergence building between the 2 now because of the slowdown in sales of the retailer? And will that in any way impact our -- I mean, will they come back to us and negotiate again for a lower rate if they are not able to do well in their portfolio?

[Shishir Shrivastava, executive]

Parikshit, thank you for your question. So in the last 12 months, generally, I would say minimum guarantee at an average across our malls may have gone up by about 10%. And as we know that in the last quarter or last 2 quarters, retail consumption has been muted. We've seen a growth in our malls. It's not been there pan-India in other stand-alone stores, et cetera. But -- so I would say a 5% growth -- 5% to 7% growth is what we have seen.

Consequently, because the minimum guarantee and you are very well familiar with our model, Parikshit, every cycle of 3 years, you see that MG moves up and catches up with the incremental rent that we get out of the revenue share. So it takes another 2 quarters or 3 quarters before the revenue share starts moving up again. So perhaps we may see an impact of the slow consumption across the country. But we are confident that with our initiatives, it may be a 2 quarter or 2 quarter lag, but again, there will -- we will start seeing incremental rents being contributed out of revenue share as the consumption moves up.

[Parikshit Kandpal, analyst]

Okay. But you are seeing some divergence between the 2. So revenue share is tracking down and MG is tracking higher over this period?

[Shishir Shrivastava, executive]

No, it's not tracking down or tracking higher. This is the way our model has worked over the last 20 years. Every 3 years, you see a significant jump as you end -- as contracts near end of tenure and you enter into renewals or even within 5-year contracts at the end of 3 years, there's a significant jump in MG.

So this is the way the model is. MG moves up, then it takes and catches up with the overall rent that we were deriving as a combination of MG plus the incremental rent from rev share. So when MG moves up, it catches up to that. That becomes the new base. And over a period of 2 or 3 quarters, consumption then tracks up and starts contributing further incremental rent. See, typically, we've always seen an average of incremental rent being in the range of about 11%, 12% over and above the minimum guarantee. So we are -- we remain confident that over a period, we will be at that -- we will continue to be at that.

[Parikshit Kandpal, analyst]

Okay. Sir, second question is on the multiplexes, which is about 14% of the trading mix and F&B 11%. So in 1H, we have seen both multiplex is tracking down by almost 11% in consumption and F&B has been muted 0% to 2%. So they take up almost 25% of the area, but they are not growing and both are interrelated. Though they contribute very low, I mean, mall multiplex is about 4% to the consumption, but still occupying a lot of space and we have not been getting good content, I mean, a blockbuster content of late for some time now.

So -- and I think you did mention that you are looking at adding more area under this umbrella. So given that, so how do you see growth coming in when large part of the area will not contribute towards rental growth or consumption growth?

[Varun Parwal, executive]

Parikshit, Varun this side. I think just clarifying on the first part, family entertainment centers, which comprise of retailers like a Timezone or a Play 'n Learn or Game Palacio or other gaming centers, is at about 5% to 6% of our overall retail leasable area at this point in time and multiplexes are at about 8% to 9%.

The family entertainment centers, of course, have been seeing a very strong growth and they have been acting as crowd-pullers and they have been helping us increase the dwell time that consumers have. And multiplexes for reasons that have been discussed in various other forums, they have seen a bit of impact on consumption because of the sort of content that's coming out. But I think as we look forward, we see the content pipeline increasing and improving, and we are seeing a lot of blockbuster lineup scheduled now for the period from November to March.

So we are hopeful that it's -- we are through the worst of the cycle for the multiplexes. And going forward, we should start seeing improving numbers. And at the same time, with our family entertainment centers and our own in-house fan power and open spaces, we have done a lot of events for which the response has been phenomenal across cities. And that continues to act as getting people and experiential revenue to come and spend time in the mall.

[Parikshit Kandpal, analyst]

Okay. Just on that, the last question on this Thane thing, so now we have 2 large malls in the vicinity of about 2-kilometer radius. And I understand one of the peers who has bought a land nearby is looking to sell in the market to sell the land where he was planning to build a multiplex. So what gives us confidence that in a market where already 2 large assets are there, one peer is looking to exit? So what gives us confidence that, again, we can repeat a Phoenix MarketCity kind of a model in this macro market?

[Shishir Shrivastava, executive]

Yes. I think it's going to be an interesting development to see how Thane is shaping up. We believe that there is -- Thane does have the size of the market who can absorb another 1 million or 2 million square feet of retail GLA. We are going to clearly build something which is best-in-class new age. We are going to be leveraging our relationships with the brands to get the best brand mix over here.

When we purchase -- typically, before we acquire any land, we do extensive research and extensive discussions with our brand partners who lead the mall occupancy, global and Indian brand partners. And we have a lot of interest from the best of brands to be a part of this mall. It's -- we are very, very conscious of the competition there. And clearly, our efforts are going to be to build the best asset that there is in that micro market for time to come, and that should -- that will be the foundation of driving our success.

[Parikshit Kandpal, analyst]

So what will be the rental we are kind of starting rentals?

[Shishir Shrivastava, executive]

So we have underwritten our rentals in the range of about INR 175, but that's only for the business plan and for the acquisition evaluation and feasibility. We are confident that the market is going to be closer to about INR 180 to INR 200 in that range. And I think that puts us in a very, very good space.

[Operator]

We'll take our next question from the line of Parvez Qazi from Nuvama Group.

[Parvez Qazi, analyst]

So my first question is regarding the Thane land parcel. When do we see the completion time line for the mall, which we intend to develop in the first phase? Second is with regards to the Kolkata residential project. What could be a potential launch time line there? And third, at a slightly broader overall level, I mean, slowdown in urban consumption has been talk for now last couple of quarters. We have, in fact, done quite well. So what additionally can we do in terms of either category mix change or other things which we can try to kind of tackle this in future?

[Shishir Shrivastava, executive]

So Thane, if I may just clarify, Parvez, your first question was on Thane? I couldn't hear you very clearly.

[Parvez Qazi, analyst]

So the completion time line for the Thane mall.

[Shishir Shrivastava, executive]

Okay. So we are currently in advanced design development stages. I think we will go into approvals maybe in the next 1.5 months or so. Typically, it may take a quarter or so to get the approvals. I would think that we should be in a position to break ground in about 6 months from now. Typically, the first phase, which is the mall, takes about 4 years to build out. And so in about 4.5 years, one can expect that the mall will be ready for retailers to do their fit-outs and soon after that commence their construction operations.

[Parvez Qazi, analyst]

Sure. For the Kolkata residential project?

[Shishir Shrivastava, executive]

Kolkata residential, we expect to launch this in Q1 FY '26, sometime in April next year. And the premarketing activities will start even -- probably in the last quarter of this financial year.

[Parvez Qazi, analyst]

Sure. And regarding the overall urban consumption things, what can be done?

[Shishir Shrivastava, executive]

We will continue to focus on what we do best and which is make sure that -- see, we've continually been very innovative in the way we are driving the right profile of customers to our malls and driving consumption. And we're going to continue to do that. We have some excellent lineup of some large events, performances at all our malls with great artists, a lot of F&B-based events.

We did -- I don't know if you're aware, we did the Master Chef event in Bangalore, where we had the erstwhile judges from Australia visit us. And this ran over 3 days. All 3 days were sold out. Tickets were priced at INR 6,000 ahead, and they were all sold out. So these are the quality of events that we run there, which drives the correct -- which drives consumption.

Over and above that, we have the best of artists performing across our destinations. We have the best experiential events, decor, which all is driving consumption. So we will continue to do that and continue to do that the best way we can, which is why, again, if you just correlate with retailers pan-India consumption and versus the store consumption recorded by their stores in our malls, you will see that they track far, far, far better than they do across the country.

[Operator]

[Operator Instructions] Next question is from the line of Kunal Lakhan from CLSA.

[Kunal Lakhan, analyst]

Again just on the consumption side, right. So if we look at them...

[Operator]

Sir, can you use the handset mode?

[Kunal Lakhan, analyst]

Is it better?

[Shishir Shrivastava, executive]

Yes, Kunal. Please go ahead.

[Kunal Lakhan, analyst]

Yes, sure. So just on the consumption side. So if you just consider like the malls, which have been stable, right, in terms of the occupancy above 90%, so if you exclude, say, Ahmedabad, which saw an uptick in the occupancy as well as trading density, the overall consumption, rather same-store consumption was like, say, less than 3% up, right? How does this -- like how should one look at this number like going ahead, right?

I remember in the past, you've spoken about like your mature malls should clock somewhere in the range of like double-digit consumption growth on a steady-state basis. How do you look at this number now in context of like the slowdown that we are seeing overall in consumption across India? I understand your -- consumption at your malls is doing better, but overall slowdown is less. So how do you see this number for steady-state malls going ahead?

[Shishir Shrivastava, executive]

Kunal, you have to actually look at historically how we've trended over the last 15 years. And we've typically been in that double-digit growth for the last 15 years. It's not -- I don't -- I believe that with our -- simply with the way people -- the way our shoppers are growing in numbers over a period of time. I think this -- to me, personally, this may be a blip for a couple of quarters fueled by many, many reasons, whether it is the pricing inflation in retail, whether it is generally the -- we had elections and you had dry days and all of that this year. I think it's a blip that one may see for a couple of quarters.

But again, over the long run, we remain confident to see double-digit growth in consumption across the board. And we are conscious of the fact that as the malls age, as the market actually continues to -- at some point, it's not going to keep growing, but there is going to be some kind of a leveling off in consumption trends. So we focus on how we're going to grow the business, and we continue to focus on looking at new geographies where we can enter. And I think that strategy has played out well in times where organic growth has been moderate, but we are seeing that the contribution due to inorganic growth has taken our overall consumption and overall rentals and EBITDA up. That strategy continues to play out.

[Kunal Lakhan, analyst]

Okay. And just to understand like 10% double-digit consumption growth, how do you break this up in terms of, like, say, in terms of pricing led, in terms of volume, volume of footfall led, how do you break that up internally for yourself?

[Shishir Shrivastava, executive]

Okay. So if we just look at Phoenix MarketCity Mumbai, right, which has recorded double-digit growth, we've seen the contributors to that would be new retailers that we've added like Uniqlo, et cetera. So we're bringing in new brands and new categories as well. We've seen F&B with cafes and bars showing a significant increase in consumption. Return to, I would say, the multiplex is awaited because that, I think, is going to fuel more consumption. But hopefully, with new blockbusters being released, that will play out well.

We got Decathlon in at Phoenix MarketCity Kurla, again, which is under fit-out. This is going to certainly bring in a different category and a new brand in driving that. And interestingly, as the occupancy of the offices continues to grow, that keeps adding captive audience to the mall for the entertainment and F&B. And that category -- that again is going to aid consumption growth. So similarly, again, as we see the office occupancy of Fountainhead Tower 3 in Phoenix MarketCity Viman Nagar, that will aid consumption as well. As Phoenix Asia Towers 8,000 square feet get occupied in Bangalore, that will aid the consumption at Mall of Asia. So there are multiple strategies at play here, which help us get into a 10%, 11% kind of a growth.

[Kunal Lakhan, analyst]

Sure, sure. And my second question was on the Tier 2 city opportunity, right? I mean we have seen some capital deployment there in the last few years and particularly in the last quarter also, Coimbatore and Chandigarh. So how should we look at incrementally on the capital deployment side? So how much would be the focus towards Tier 2 towns? And just an overall just view on the whole.

[Shishir Shrivastava, executive]

We've been very clear about our growth strategy and cities which are of interest. I think it's repeated in every investor presentation, and we are simply going with that and check boxing that. You can see Thane, Coimbatore, Chandigarh has been check box. We still are looking for options in Hyderabad, NCR, Navi Mumbai, Goa, Jaipur, Kochi. These are markets that we believe are well worth our investment. And we'll see -- we should achieve our target growth of -- target yields of 14%, 15% on mall stabilization in each of these locations in the -- after 3 years of operations and steadily increasing and going up to 20% thereafter. So we've been quite clear.

If you are asking us what is our Tier 2 strategy, just look at the Slide #10 on our presentation.

[Varun Parwal, executive]

This is in the corporate...

[Shishir Shrivastava, executive]

Look at the Slide #10 of our corporate presentation, and you will see the cities of interest. These are the cities that we are focused on.

[Operator]

Ladies and gentlemen, we'll take that as the last question for today. On behalf of The Phoenix Mills Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.