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Consumption recovery at shopping malls and improving hotel occupancy are boosting investors’ sentiment towards shares of The Phoenix Mills Ltd, which hit a 52-week high of 1,448.95 on 1 September.

In August, the total consumption at the malls run by Phoenix Mills was 738 crore. This is 125% of the August 2019 or pre-pandemic level. However, the metric drops to 114% on a like-to-like basis after adjusting for Phoenix Palassio mall, which opened in July 2020. The consumption level is down month-on-month in August, but analysts said the medium-term trend is positive. Over April to August 2022, gross consumption was 3,720 crore, or 125% of April to August 2019.

Bouncing back
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Bouncing back

Urban consumption was hit severely in the initial phases of the covid-19 pandemic, weighing on discretionary spending. However, with restrictions imposed to curb the spread of coronavirus easing and fears of contracting the virus subsiding, things are looking up for Phoenix Mills.

“Revival of consumption at malls and occupancy at hotels, and liquidation of ready inventory in the housing segment are likely to culminate in robust cash flows," Edelweiss Securities Ltd said in a 5 September note to clients. In the hospitality segment, the resumption of foreign and corporate travel, social events and staycations are expected to improve occupancy and average room rates during the fiscal, the report pointed out.

Phoenix Mills also achieved gross leasing of around 190,000 sq feet in commercial assets in the five months to August. Of this, around 130,000 sq feet was new leasing and nearly 60,000 sq feet was renewal. With work-from-home starting to take a back seat, concerns about leasing commercial assets for Phoenix Mills are expected to wane.

So far in FY23, Phoenix’s shares have surged nearly 28%, smartly outperforming the 2% gain in the Nifty Realty index. The sharp appreciation suggests investors are factoring in the potential benefits of the re-opening theme to a good extent. So, further upsides would hinge on how a slew of factors plays out. On Tuesday, the stock closed at 1,404.90 on NSE.

“The near-term outlook for the stock is positive, but we expect shares to hover at current levels. The execution risk relating to the opening of new malls has not been entirely priced in," said an analyst, requesting anonymity. Second, the company’s diversification into commercial and residential segments, where it does not have much expertise, is a crucial monitorable and could lead to a capital allocation risk as well as increased debt, he said.

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