India's mall operators to see revenue rise by 7-9% this fiscal: CRISIL

Notably, this will be on a high base of fiscal 2023, when a return to social normalcy after mobility curbs were lifted led to substantial growth in footfalls and a robust 60 per cent rise in revenue to approximately 116 per cent of the pre-pandemic level. Additionally, high occupancy levels, solid profitability backed by cost-optimisation measures, and strong balance sheets will keep the credit risk profiles of mall operators healthy this fiscal, according to a CRISIL Ratings analysis of 28 malls in the country.

The exceptional revenue growth last fiscal was on a significantly weak base. In fiscals 2021 and 2022, revenue stood at 55 per cent and 74 per cent of the pre-pandemic level, respectively, as mall operators had waived off rent and allowed flexible payment terms to tenants in a bid to prevent any major decline in occupancy. As the impact of COVID-19 waned and occupancy increased, average per square feet leasing rate jumped 12-14 per cent in fiscal 2023.

The benefits of healthy occupancy and better leasing rates will continue this fiscal as well. The pandemic also goaded mall operators to reduce costs through efficient manpower planning and optimisation of overheads. That should continue this fiscal as well, added CRISIL.

Low debt level will translate to comfortable debt to earnings before interest, taxes, depreciation, and amortisation (EBITDA) of around three times, and healthy debt service coverage ratio (DSCR) of 1.7-1.8 times this fiscal (similar to fiscal 2023 but a significant improvement from around 1.2 times in fiscal 2022).

Considering the healthy performance of the sector, capex is expected to pick up over the near to medium term. While a sizeable part of it may be funded by equity from global investors, large debt contracted for new developments will bear watching.

On the flipside, the impact of slowdown in advanced economies, and the manifestation of the lagged effect of repo rate hikes of the past can curtail discretionary spending, including retail sales. This aspect will, therefore, be monitorable.

“Robust retail sales will help mall operators increase revenue in two ways. One, occupancy of around 95 per cent will translate to better rental rates for new leases. Two, 10-15 per cent of the revenue of mall operators is linked to retail sales via revenue share income, which will increase this fiscal. Additionally, operators will get contractual rent escalations of 4-5 per cent as well,” said Mohit Makhija, senior director, CRISIL Ratings.

“Cost efficiency measures taken during the pandemic are likely to help improve profitability. Operating margin is expected at approximately 70 per cent this fiscal compared with the pre-pandemic level of 65-68 per cent. Further, improvement in leverage through equity infusion will keep credit risk profiles stable. Continued investor interest in the sector through platforms such as real estate investment trusts (REITs) also bode well,” said Anand Kulkarni, director, CRISIL Ratings.

Fibre2Fashion News Desk (NB)