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Still to Rise

Phoenix Mills will be a good investment if the retail & commercial sectors take off, which seems unlikely…

Phoenix Mills is a Mumbai based retail mall developer with around 6.17 million of retail space spread across eight cities. Its most recognisable property is Mumbai’s High Street Phoenix located in Lower Parel. In its most recent quarter, average rentals for High Street Phoenix declined 4 per cent (q-o-q) and footfalls were flat and consumption was down 4 per cent.

Betting on Phoenix Mills is betting on the retail and commercial sectors to take off and neither seem to be happening – not now and not any time soon.

Occupancy at its Kurla (Mumbai) mall increased from 50 per cent (Q4FY12) to 59 per cent (Q1FY13). The Pune Mall saw no occupancy increases (currently at 69 per cent) while Bangalore mall saw 2 per cent increase in occupancy (at 62 per cent). Keep in mind that the break-even levels for these malls stand at between 80-85 per cent. Till that time, operations and debt repayment will remain a concern.

The company’s hotel project, the Shangri La Hotel, saw impact of cost overruns and rupee depreciation (higher import costs). Development costs are slated to rise from Rs 835 crore to Rs 1,000 crore. This escalated cost is expected to increase break-even RevPAR (Revenue Per Available Room) to around Rs 9,500, which according to analysts could be a challenge to achieve.

With retail and commercial sectors yet to show signs of any significant breakout, the prospects of a mall developer like Phoenix Mills remain muted in the near term. If in for the very long haul, wait, otherwise.