Mall operators’ earnings will surpass pre-pandemic levels in fiscal

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Retailers are rushing to open stores in smaller cities due to rising demand, and Tier-2 cities like Indore, Lucknow, Ahmedabad, Jaipur, Udaipur, Chandigarh, and Mohali are expected to witness a supply of close to 2 million sq ft of grade A malls. “Brands are moving there because they’ve realized where their customer base is. Rajendra Kalkar, president-west at Phoenix Mills NSE -0.17 percent, which runs more than half a dozen malls in Mumbai, Pune, Bengaluru, and in some tier-2 cities, said, “We are opening in Indore and Ahmedabad this year, and there is a lot of demand from our existing malls in tier-2 cities.

“As consumers relocated there during the pandemic, both domestic and foreign firms are vying for space in aspirational cities more and more. Despite the fact that many offices have reopened, a sizeable portion of people continue to work from home and shop, which has led to an increase in consumption, according to Prateek Mittal, executive director of Sushma Group.

Sushma group intends to grow its retail presence and deliver 150,000 square feet of its 350,000 square foot project in Chandigarh’s Zirakpur. “The retail growth narrative in tier 2-3 cities is being driven by India’s youth, both on the consumer and supply sides. The demand for retail spaces has increased in recent years as a result of their willingness to spend money and try new things as business owners, according to Jatin Goel, director of Omaxe Ltd.

Revenues for mall operators are anticipated to surpass pre-pandemic levels this fiscal year due to an increase in foot traffic brought on by the lifting of COVID-19 limitations, according to a note on the sector from Crisil Ratings. In the first quarter of this fiscal year, mall retail sales already exceeded 120-125 percent of pre-pandemic levels. “Malls have experienced less damage and quicker recovery with each Covid-19 wave that has passed. Due to the fact that several malls were still open, the third wave had little effect on the industry. Retail sales consequently increased to pre-pandemic levels in February 2022, according to Crisil Ratings director Anand Kulkarni.

The average debt service coverage ratio (DSCR1) is expected to increase from 1 time last fiscal year to 1.3 times this fiscal due to the resulting healthy improvement in cash flows and stable debt levels. According to a CRISIL Ratings research of the top 14 malls in India, this is the case.

In fact, malls have been able to reverse rental concessions given to tenants thanks to an upsurge in revenue. This fiscal year, rental income will increase by 10% over pre-pandemic levels as a result of that and contract-based escalations, according to Kulkarni. According to the ratings company, mall operators waived rentals during the pandemic, maintaining a high occupancy rate of 90%.

In the meantime, malls are reporting a resurgence in sales across all product categories, including groceries, clothing, footwear, cosmetics, electronics, and luxury. By the third quarter of the previous fiscal year, these categories, which make up 75–80 percent of mall sales, had nearly fully recovered.

According to a letter from Crisil, the rate of recovery has also quickened in sectors including food and beverage, movies, and family entertainment centres. The third wave’s mall restrictions only lasted a little over a month, as opposed to the first and second waves’ median mall closure times of 13–14 weeks and 7-8 weeks, respectively. Additionally, in contrast to the first two waves, only scheduling or capacity constraints were in place for the third wave. The ratings agency stated that this lessened the impact on mall operators’ credit profiles.

“Mall operators’ balance sheets have remained sound. Their debt to rental income ratio is anticipated to be comfortable this fiscal year at 3.2 times, down from 4.2 times in fiscal 2020. According to Saina Kathawala, Associate Director, Crisil Ratings, “several malls with solid sponsors have raised equity or refinanced debt boosting liquidity to 4-5 months of debt-servicing commitments.” Having said that, it will be important to keep an eye on high inflation and rising interest rates because they may have an immediate impact on discretionary spending.
Consumer preferences are another factor contributing to the sector’s development. Malls now serve as places for entertainment and recreation in addition to serving as places to buy. Footfalls should be supported by rising consumerism and a rapidly expanding urban middle class, according to this theory, which is supported by the strong level of investment interest in the industry even at the height of the pandemic. Mall closures under the third wave’s restrictions lasted less than a month, as opposed to the first and second waves’ median closure times of 13–14 weeks and 7-8 weeks, respectively. Additionally, in contrast to the first two waves, only scheduling or capacity constraints were in place for the third wave. This lessened the impact on mall operators’ credit profiles.

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