Phoenix Mills’ profits tank 79%, share price falls 8% in a week but brokerages still upbeat on stock

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Published: July 2, 2020 3:47 PM

With consumers asked to stay at home, malls across the country were ripped off their usual footfall, a move that has visibly dented the net profit of one of India’s biggest retail mall developer -- The Phoenix Mills.

Phoenix Mills said it has agreed to a 50% rental waiver in the lockdown period for 75-80% retailers.

With consumers asked to stay at home, malls across the country were ripped off their usual footfall, a move that has visibly dented the net profit of one of India’s biggest retail mall developer — The Phoenix Mills. The company reported a 79.56% fall in net profit to Rs 46.69 crore in the January-March quarter, down from Rs 91.85 crore in the previous quarter and Rs 228.41 crore in the year-ago period. Although the coronavirus pandemic is expected to hit Phoenix Mills’ business and eat profits in retail, commercial, and hospitality space, brokerage firms still seem convinced that stock is a proxy to India’s consumption story which will not be deterred from its path. 

Store owners in malls were unable to cater to any footfall, pulling their sales to near zero during the initial lockdown days, The Phoenix Mills said it has agreed to a 50% rental waiver in the lockdown period for 75-80% retailers. For a further period of up to six months this fiscal year, rentals are expected to be restructured with a reduction in minimum guarantee by 25- 30% but with higher revenue share. According to ICICI Direct, Phoenix Mills reported a 11% on-year decline in retail rental income to Rs 222 crore due to the pandemic. “Operational malls reported overall consumption decline of 15% on-year basis to Rs  1387.4 crore in March quarter despite strong consumption growth of 15-16%, 8-9% in January, February 2020 for HSP and other properties, respectively,” ICICI Direct said in a note. With the opening of malls in Mumbai, the company will hope for much-needed respite as 45% of the retail revenues are derived from those units. 

Phoenix Mills owns two hotels, St. Regis in Mumbai and Courtyard by Mariott in Agra. According to the company website, these hospitality properties witnessed 80% and 67% occupancy in the financial year 2019. However, occupancy in the March quarter was down to 69% at St Regis. Hospitality business revenues declined 14% from the previous year. Phoenix Mills management highlighted that it is fully covered in terms of planned capex and operational expenses for its assets that are active. The company, keeping in mind the uncertainty of times, has received board approval to raise Rs 1,200 crore through equity or a combination of debt and equity. 

“The firm is not planning to aggressively pursue any growth plans until the uncertainty surrounding the COVID-19 led crisis disappears. At the same time, management has guided them to remain on track to complete their under construction leasing assets,” said brokerage firm Motilal Oswal in a note. The brokerage has cut its earnings estimates for this fiscal and the next one by 31% and 12% respectively with a BUY call on the scrip and a target price of Rs 792 per share.

Analysts at ICICI Direct too are positive on Phoenix Mills taking note of the quasi play of India’s consumption story, quality of assets, healthy balance sheet & strategic expansion plans.”With only five to six major retail mall developers currently in India, and given PML’s USP of operating large format properties efficiently, it is likely to emerge as a superior player in the medium to long term,” ICICI Direct said, with a BUY call, and a target price of Rs 685 per share.

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