Phoenix Mills: Resumption uncertainty to keep stock under pressure

While the company has cash to sustain operations, near term revenues will take a hit

The Phoenix Mills stock was down about 11 per cent on Tuesday after the company's promoters sold a partial stake (7.3 per cent). Promoter holding in the company at the end of June quarter stood at just over 59 per cent. The block deal comes close on the heels of a qualified institutional placement (QIP) last week which helped raise Rs 1,089 crore at Rs 605 per share. The stock is currently trading at Rs 648.6 a share.

The near term could see some pressure on the stock, given the disruption caused by Covid-19 and the impact on its revenues — for both office and mall segments. Though rent collection for its office portfolio has been over 80 per cent and office occupancies at 82 per cent, the company has had to offer rebates on the mall portfolio. 

The company offered a 50 per cent concession for the period of the lockdown to about 80 per cent of retailers. The rebate for the rest of the financial year is expected to be restructured with a 25-30 per cent lower rent, but with a higher revenue share. Though resumption of malls in Pune and Mumbai —which account for 60 per cent of its rental portfolio —is a positive, analysts at ICICI Direct Research expect a 40 per cent decline on a like-to-like basis in rental revenues for the year. 

 

 

While the company has maintained the capex outlook for office, that for the retail segment, which accounted for over 60 per cent of its FY20 revenues, is being cut significantly. Some of the pain in the mall space was visible in the June quarter, with the overall revenue down 66 per cent year-on-year (YoY) and 78 per cent on a sequential basis. 

While the company has enough cash to meet capex and operational requirements, the key worry for the street is a deterioration of the Covid-19 situation and the imposition of localised lockdowns across its key markets. Though the stock is up 34 per cent from its May lows and brokerages believe that its medium prospects across key verticals are robust, given the uncertainty on the resumption of normal services, it is best to avoid asset-heavy plays, such as Phoenix Mills.