Prozone Intu Properties Limited: India’s growth story should lend primary support

Over past couple years, Prozone Intu Properties Limited amassed winning land bank in strategic emerging micro-markets. Focus on generating free cash flows should act as principal growth accelerator. Real estate sector growth should seek support principally from growth in corporate environment.

Overview of Prozone Intu Properties Limited

Prozone Intu Properties Limited was set up to create, develop and manage regional shopping centres and other mixed-use developments pan-India. In past decade, the company amassed winning land bank in emerging micro-markets. Progress has been seen in building high-quality portfolio focused on retail-led mixed-use assets. Business strategy of the company focuses on acquiring and developing land parcels in both high-growth emerging city corridors and mature Tier I cities, having an acute focus on mixed-use development. Goal of Prozone Intu Properties Limited is to capitalise on rising consumption of India. It plans to achieve this by building and operating multi-purpose leisure destinations. The company has 15.54 million sq. ft. of fully paid-up land banks in prime locations, with around 2.02 million sq. ft. developed till date. Over 13.5 million sq. ft. is being developed in different phases. Out of total, around 75% of land gets being developed as residential & commercial – Build & Sell model, while remaining 25% of Land gets being developed as retail – Build & Lease Model. This model is useful as cash flows from Build & Sell portfolio facilitate Build & lease model, resulting into debt-free annuity assets and free cash flows for future developments.

For residential projects, it initially builds necessary site infrastructure and facilities. The company ensures about having all approvals in place before project gets launched. This continues to be a unique selling point for its residential project.

Growth enablers of Prozone Intu Properties Limited:

·        Building foundations for future growth: Prozone Intu Properties Limited saw its revenues coming at INR934 million and EBITDA at INR609 million during FY22. During FY22, the company’s EBITDA saw a healthy growth of 86% against FY21. This increase was on account of start of revenue recognition from the company’s Indore project. It has maintained healthy balance sheet as it has low leverage and gross Debt/Equity ratio of 0.95x on consolidated basis. On a consolidated basis, its total revenue from operations came in at INR9,337.69 lakhs. Its total revenue comprises of revenue from real estate projects, license fees, service charges and others. In FY22, revenue from real estate projects came at INR2,443.23 lakhs, making up ~26.2% and license fees contributed INR4,013.93 lakhs, making up ~43% of total revenue. By FY22 end, the company saw that monthly consumption at its malls was starting to return to better than pre-Covid-19 levels. As it enters 2Q of FY23, its trajectory continues to remain stronger. While footfall recovery is slower because of generally constrained leisure segment, trading data showed a much faster recovery, breaching levels of pre-COVID. This supported in continuously delivering resilient performance which can withstand challenging market conditions. The company believes that its disciplined capital budgeting approach, to maintain balance sheet strength and to keep adequate liquidity positions, will allow the company to extend its leadership position in marketplace.

·        Key highlights of 2Q23: The company has 2 malls which have been commissioned (Aurangabad Mall and Coimbatore Mall). Coming to Residential part, the company is focused on making Coimbatore Residential and Nagpur Residential a success. In 2Q23, the company’s income from operations came in at INR267 million, with income from Mall standing at INR247.5 million, down by 2% against 1Q23. During 2Q23, income from real estate was at INR19.5 million which was from PTC project. EBITDA without other income in 2Q23 stands at INR140.9 million, with strong operating parameters. Leasing was at 91% at Coimbatore Mall & 77% at Aurangabad Mall. The company saw retailer traction getting back for good malls in 2Q23. Regarding their Coimbatore – Residential update, the company plans to build 7 towers of 18 floors comprising 1,152 apartments and 3 towers of 18 floors comprising 540 apartments are planned in phase 1. In second quarter, 11 new bookings were received and INR7 crore were collected in same quarter. For its Aurangabad mall, the company highlighted that total operational area (lakh sq. ft.) was 5.18 while total leased area (lakh sq. ft.) came at 5.28. By 2Q23 end, current leasing status was 77% and 100 stores were leased. For its Coimbatore Mall, total operational area (lakh sq. ft.) was 4.37 and total leased area (lakh sq. ft.) came at 4.55. Leasing status of the company’s Coimbatore Mall was at 91%.

·        Coimbatore – Residential: The company has ~1.9 million sq. ft. of residential and 7 towers of 18 floors having 1,152 apartments. In Phase 1, out of 540 units, 162 units were sold by 2Q23 end for INR812 million. However, collections came in at INR331 million.

•            Nagpur- Mall update: In Nagpur, the company has 0.5 million sq. ft. of retail space under advanced stage of approvals, with additional development potential of 0.39 million. In total, 15.7 acres of residential is under development. The company launched 336 units and 272 units were sold for sale value of INR1,713 million. Collections came in at INR1,265          million.

·        India’s growth story continues: One of several factors supporting India’s sturdy growth is country’s promising consumption story. Domestic consumption, powering 60% of GDP, should grow into US$6 trillion opportunity by 2030 end. Consumption growth is expected to be helped by 1.4 billion substantial population younger in comparison to other major economy. Outlook for future of consumption in India stemmed from growth of upper-middle income and high-income segments by 2030. At same time, India should also be uplifting around 25 million households out of poverty. The company continues to capitalise on growing consumption levels in India. Prozone Intu Properties Limited made significant progress by focusing on tremendous opportunities provided by India’s transforming urban milieu in important and emerging consumption cities of India. Over years, it has been sought by leading brands to occupy its malls, and is preferred by consumers within country’s growing consumption-based economy. The company is convinced of long-term growth story for grade-A malls’ business and continues to look forward to stronger performance in FY23.

·        Capitalising on sectoral opportunities: Retail sector in India is expected to see growth at a rate of 9–10% to touch $2 trillion by 2032. Therefore, it will be able to maintain current development trajectory despite being around 2 years behind schedule because of pandemic. India’s retail space continues to expand and offer new prospects for retailers. The companies are required to be flexible and quickly adapt to keep up with changing consumer tastes and preference despite a shift in business environment. Through in-store experience concepts and technology, brands continue to experiment with new methods of connecting with consumers. According to India Brand Equity Foundation (IBEF), country’s retail industry should grow by 9% from 2019-2030 to US$1,407 billion by 2026 and more than US$ 1.8 trillion by 2030. Demand is expected to expand around 10% over long run, despite disruptions. Retailers have great potential to take advantage of higher demand in coming years.

• Steps likely to stem growth: As the company gradually recovers and operations get resumed, it expects business operations to ramp up because of evolving consumer behaviour, resetting of disturbed supply chain and inventory levels. Footfalls to its malls should see an improvement as restrictions related to COVID are now removed. With growing importance of digital tools, the company initiated several strategic digital interventions. This makes customers lives more convenient. Particularly, it has introduced a mobile app to offer consumers appointment-based safe access to shopping in stores in its malls. The company continues to work on its customer relationship management platform to strengthen its relationships with occupiers and visitors alike. The company works to emerge as destination of choice for population within its target markets. The company continues to capitalize on its balance sheet, which should enable growth. Apart from this, consumption story of India should supplement its growth accelerators.
• Industry overview: Growth of real estate sector is supported by growth in corporate environment and demand for office space. In India, real estate sector is tagged as second-highest employment generator, while first spot is given to agriculture sector. Real estate sector should bring in more non-resident Indian investment, both in short term and long term. Retail, hospitality, and commercial real estate have seen strong growth, providing much-needed infrastructure for this country’s growing needs. According to data by Department for Promotion of Industry and Internal Trade Policy, construction has been categorised as third largest sector in terms of inflow of foreign direct investment, with this sector seeing USD42.97 billion of investment between Apr 2000-Sept 2020. Blackstone is one of largest private market investors in India as it managed ~INR3,694 crores of market value in real estate sector. This asset manager expects to invest INR1,625 crores+ in next 10 years.

Conclusion

Renowned investors hold their stakes in Prozone Intu Properties Limited and one of them is Mr. Rakesh Jhunjhunwala. Promoters of the company held ~27.40% as of Sept 2022. FDI holds 28.83% and balance is held by public. At the company level, Prozone secured investment from Intu Properties, categorised as one of UK’s largest retail real estate company. At SPV level, it secured investment from Old Mutual, South Africa and Lewis Trust Group (LTG), UK.

Locations for projects are selected by the company in high growth corridors within limits of city. Later, it develops and sells mixed-use assets so that retail investments can be seen. Strategy for residential projects is that the company invests and develops entire clubhouse and site infrastructure for project upfront, before project launch. Better cash flows can be seen because this strategy accelerates project sale.

The company’s plans are to participate and dominate retail space in Tier 2 and 3 cities in which strong urbanization is expected. This should result in growth of consuming middle class from 300 to 500 million in next 5 years.  

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