Home >Markets >Mark To Market >Investors look beyond FY21 as Phoenix Mills’ fourth-quarter profit crumbles
A file photo of The Phoenix Market City mall in Bengaluru. Photo: Jithendra M./Mint
A file photo of The Phoenix Market City mall in Bengaluru. Photo: Jithendra M./Mint

Investors look beyond FY21 as Phoenix Mills’ fourth-quarter profit crumbles

  • The hit in the March quarter comes from the closure of malls owing to the covid-19 lockdown starting 25 March
  • Some states had asked shopping malls to close operations even before the lockdown to protect people from contracting the virus

MUMBAI: Phoenix Mills Ltd can be considered a proxy for shopping malls in the country. Its March quarter results and commentary give an indication of the pain that empty malls during the covid-19 lockdown have brought on the sector.

To start with, the company indicated to analysts that it has settled for lower rentals with a majority of retailers. “Management highlighted that it has reached an agreement with majority of the retailers (>70%, excluding multiplexes), for allowing a 50% rebate in rentals for the lockdown period and graded reduction in rentals for the next 3-9 months, till consumption is back to about 70-75% of last year’s run rate," analysts at IIFL Securities Ltd wrote in a report on 1 July.

Coming to the March quarter results announced earlier this week, consolidated revenues fell nearly 45% year-on-year to Rs399 crore, as revenues from the residential segment evaporated. Operating profit nearly halved.

Source: Company presentation
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Source: Company presentation

Phoenix derives revenues from retail, residential, commercial, hospitality & others. The retail segment is the key driver for the company, and biggest revenue contributor, accounting for 62% of revenues in FY20. Last quarter, the retail segment’s revenue, largely consisting of rental income, fell by 7%. Note that retail revenues had increased by 7.5% year-on-year in 9MFY20.

The hit in the March quarter comes from the closure of malls owing to the covid-19 lockdown starting 25 March, with some states restricted operations even before the lockdown.

For Phoenix Mills, the worst is yet to come with the pain expected to be deeper in the June quarter due to the longer period of the lockdown. From 8 June, the company has reopened malls in Lucknow, Bengaluru, Bareilly. Average daily consumption in Bangalore has reached 38% vis-a-vis the average daily consumption during June 2019, the company said. With footfalls and hence rentals being much lower, profits will take a massive hit.

But analysts expect the company to be comfortable in meeting its fixed costs and interest costs over the medium term. IIFL Securities, for instance, estimates an operating cash flow after interest of Rs190 crore for FY21. To have enough liquidity cushion, Phoenix is also looking to raise funds up to Rs1,200 crore.

Going forward, much depends on how the covid-19 situation evolves. Notwithstanding a steep impact on retail & hospitality portfolio in FY21, ICICI Direct Research said it remains positive on Phoenix Mills given its quasi play on India’s consumption story, quality of assets, healthy balance sheet & strategic expansion plans.

While the Phoenix Mills stock has recovered from its lows seen in May, the shares are still about 44% lower compared to its highs in February.

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