Home >Markets >Mark To Market >Phoenix Mills’ revival isn’t enough to lift stock above pre-covid highs

Mall company The Phoenix Mills Ltd’s progress on recovery from the adverse impact of covid-19 restrictions has been decent. In the December quarter, consolidated revenue fall was curbed to 34% year-on-year. This shows a consistent improvement from the revenue drop of 48% and 78% in the September quarter and June quarter, respectively.

Post the covid-19 disruptions, sustained recovery in consumption at malls holds the key to the company’s fortunes. In the December quarter, consumption levels at its retail malls averaged at about 67% of the year-ago quarter. This improved further in January to about 83% y-o-y.

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But the Phoenix Mills stock hardly moved since its December quarter results were announced, declining by about 1%. As things stand, the shares continue to languish below pre-covid highs seen in February 2020.

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Indeed, covid impacted Phoenix Mills more versus some other companies, as malls were allowed to restart operations much later. As such, FY2021 is expected to be pretty much forgettable. All eyes are now on FY2022.

In a report on 15 February, analysts of IIFL Securities Ltd said: “We see revenues reverting to near-normalcy in FY22 and strong growth thereafter, driven by doubling of the retail footprint by FY25."

HDFC Securities Ltd analysts point out: “Despite the near-term challenges, we expect Phoenix Mills’ FY22E rental to be at par with FY20E as discount unwinds to pre-covid contract rentals, including FY21 escalations."

The company’s retail rental income for the December quarter declined by 37% y-o-y. With the first half of the year being much weaker, rentals understandably declined at a sharper rate of 57% y-o-y for the nine months ended December.

In the December quarter, the residential segment performed well with revenue growth of 16% y-o-y, while recovery in the hospitality segment was painfully slow. Overall, retail, residential, commercial and hospitality and others contributed 66%, 16.5%, 9.3% and 8.2% of revenues in the quarter, respectively.

Meanwhile, it recently signed a non-binding term sheet with GIC Private Equity. It has indicated to analysts that talks with GIC are progressing well for the retail-led mixed-use development platform.

Further, Phoenix Mills has acquired 7.48 acres in Kolkata. In the first phase, it plans to develop 1 million sq. ft (msf) of retail mall space and in the second phase, 0.2 msf of commercial office space. Over the next few years, Phoenix is expected to nearly double its retail footprint to about 13 msf, which offers decent visibility for earnings growth.

Even so, there are risks in the near term. Slowdown in consumption or lack of adequate revival in footfall at malls are some factors that could weigh on the Phoenix stock, which has underperformed broader markets over the past one year.

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