“The outlook revision reflects a strong recovery in retail sales witnessed across malls in the second quarter ending September and October 2021 post reopening after the second wave of the pandemic and an expected further improvement in retail sales in the second half of 2022,” the rating agency said.
Strengthening of the liquidity position of the group through stake dilution in assets and equity fundraising through qualified institutional placement (QIP) were also attributed as reasons for the revision of the rating.
While the pandemic and consequent closure of malls have impacted performance, the recovery has been steady post reopening. After the closure of malls in April 2021 due to the second wave, malls gradually reopened from June 2021 albeit with restrictions.
Despite the restrictions, a strong recovery was witnessed, with retail sales reaching 74% of the pre-pandemic (Q2 2020) level in Q2 2022. Consequently, revenue and operating profit for Q2 2022 were adequate at 67% of the pre-pandemic level each, excluding Phoenix Palassio, Lucknow, which became operational in July 2020.
Retail sales further improved to around 90% of the pre-pandemic level in October 2021. Recovery in revenue and profits in H2 2022 is expected to be strong. The group has also taken steps to ensure the availability of ample liquidity to tide over the current situation and meet growth capital requirements in the medium term, CRISIL said.
Since August 2020, the group has raised a total of nearly Rs 3,400 crore through Rs 1,100 crore through QIP, an agreement with the Government of Singapore Investment Corporation (GIC) for stake sale of 26% in 3 subsidiaries for Rs 1,111 crore (realised in June 2021), infusion of Rs 196 crore from Canada Pension Plan Investment Board (CPPIB) for meeting capital expenditure (capex) requirements in under-construction assets housed under Island Star Mall Developers part of the group and owns and operates the Phoenix Market City mall in Bengaluru) and deal with CPPIB for the investment of Rs 384 crore in two tranches for the development of the group’s new asset in Kolkata for a 49% stake in the project.
Additionally, on November 15, 2021, CPPIB committed to invest Rs 1,350 crore in tranches for acquiring a 49% stake in Plutocrat Commercial Real Estate, a holding company for developing an office-led mixed-use asset in Mumbai.
CPPIB has already infused Rs 787 crore towards the development as of date. All these initiatives have strengthened the liquidity position of the group with cash balances, liquid investments and undrawn bank lines standing at an aggregate of Rs 2,622 crore as of November 18, 2021. CRISIL Ratings expects the liquidity position to remain strong in the near to medium term.
The rating continues to reflect the Phoenix Mills group’s leadership position in the Indian retail mall segment, diversified revenue profile, and comfortable financial risk profile. These strengths are partially offset by exposure to project risks because of significant expansion plans, skewed debt amortisation schedule impacting near term coverage ratios, volatility in occupancy, and vulnerability to cyclicality in the real estate sector.
