CRISIL said that the outlook revision reflects strong recovery in retail sales witnessed across malls in Q2 2022 and October 2021 post reopening after the second wave of the pandemic, expected further improvement in retail sales in H2 2022 and strengthening of liquidity position of the group through stake dilution in assets and equity fund raising through qualified institutional placement (QIP).

While the pandemic and consequent closure of malls have impacted performance, the recovery has been steady post reopening. After closure of malls in April 2021 due to the second wave, malls gradually reopened from June 2021 albeit with restrictions.

Despite the restrictions, strong recovery was witnessed, with retail sales reaching 74% of pre-pandemic (Q2 2020) level in Q2 2022. Consequently, revenue and EBITDA (earnings before interest, tax, depreciation and amortisation) for Q2 2022 were adequate at 67% of pre-pandemic level each (excluding for Phoenix Palassio, Lucknow, which became operational in July 2020).

Retail sales further improved to around 90% of 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 availability of ample liquidity to tide over the current situation and meet growth capital requirements in the medium term. Since August 2020, the group has raised a total of approximately Rs 3400 crore. 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.

The Phoenix Mills is a leading retail mall developer and operator in India and is the pioneer of retail-led, mixed-use developments in India. The company has an operational retail portfolio of approximately 7.0 million square feet of retail space spread across 9 operational malls in 6 gateway cities of India. Besides retail, the company has an operating commercial office portfolio with gross leasable area of 1.5 million square feet. It also owns 2 hotels aggregating to 588 keys.

The company reported a consolidated net profit of Rs 59.48 crore in Q2 FY22 as against a net loss of Rs 35.91 crore in Q2 FY21. Net sales during the quarter increased by 72.8% YoY to Rs 371.31 crore.

The scrip slumped 5.79% to currently trade at Rs 914.60 on the BSE.