Mall space in India is set to increase by 30-35 million square feet (msf), or a third of current stock, over the next 3-4 years, said a report by CRISIL Ratings. The growth, it added, will be spurred by the strong recovery in retail sales last fiscal. “The retail recovery is expected to sustain, as broad-based consumption across geographies as well as sectors fortifies demand resilience. In fact, revenue of mall owners for this fiscal is estimated at ~125 per cent of the pre-pandemic level,” it said.
The area addition, CRISIL said, will be aided by continued investor interest in malls, as evident from investments in new assets. This, along with comfortable balance sheets, will keep credit risk profiles of mall owners stable despite the sizeable capital expenditure (capex) plans.
“Malls are expected to attract investment of more than Rs 20,000 crore over the next 3-4 years. The reasons for the sizeable supply addition are twofold: one, resumption of work on new supply, which was stalled during the pandemic due to uncertainty regarding the timeline of recovery. And two, robust retail sales at malls and the consequent strong operating performance of mall owners in the current as well as last fiscal,” said Anand Kulkarni, Director, CRISIL Ratings.
“Mall owners are likely to report a second consecutive year of high performance this fiscal, with revenue growth of 7-9 per cent, following the robust 60 per cent growth last fiscal. This strong performance has helped malls sustain healthy occupancy of ~95 per cent. The operating performance is likely to remain strong over the medium term due to the underlying broad-based consumption across multiple retail categories,” said Saina Kathawala, Associate Director, CRISIL Ratings.
Key sectors showcasing recovery
Sectors such as jewellery, restaurants, sports and electronics have recovered well above their pre-pandemic levels and maintained double-digit growth this fiscal. Some sectors, such as apparel and footwear, have also seen strong recovery, albeit with some tapering this fiscal. Multiplexes, which are typically strong footfall drivers for malls, are also seeing healthy performance with improved content availability.
In the CRISIL Ratings sample, credit risk profiles will remain stable on strong operating performance and comfortable balance sheets, supported by equity infusion by investors. The ratio of debt to earnings before interest, taxes, depreciation and amortisation (Ebitda) is expected at 3 times this fiscal, marginally better than ~3.2 times last fiscal. The debt service coverage ratio (DSCR) will remain strong at ~1.8 times this fiscal (similar to fiscal 2023 and a significant improvement from ~1.2 times in fiscal 2022). That said, CRISIL concluded that increase in interest rates and inflationary pressures may limit discretionary spending, and its impact on the performance of malls will bear watching in the road ahead.