Premium and luxury products in the jewellery, electronics and fashion segments have led to a rebound of footfall in malls. During the April-September period this fiscal, trading values recovered to about 115% of pre-Covid levels, backed by increase in spend per footfall in these sectors. Mall footfall was around 85% of pre-Covid levels.
According to rating agency Icra, the trading density is expected to remain firm till March 2023 given the impact of the festive season.
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Additionally, rental income has bounced back driven by a higher revenue share owing to an increase in retail trading density due to premiumisation. Rental income reached 123% of pre-Covid levels in the first half of FY23, and is expected to be around 123-125% of that in the second half as well. According to Icra, rental income is expected to increase 5-6% year-on-year in FY24.
Vacancy levels increased marginally till September at 18% from 16% in the year ended March 31, 2022, with new supply of malls in the current year. Icra expects the figure to be at 15-16% by the end of FY23.
The leverage ratio for malls, measured as the debt-to-NOI (net operating income) ratio, is expected to ease to 5x-6x in FY23 and FY24 from 6.5x-7.5x in FY22, with an expected improvement in NOI. Consequently, the debt service coverage ratio, which was around 1x in FY22, is expected to improve significantly to 1.3x-1.4x in FY23 and remain between 1.4x-1.5x in FY24, the rating agency said.
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Meanwhile, food and grocery retailers are expected to close the current financial year with a 15-20% growth y-o-y, as continued strong demand for essential products and increasing retail presence of organised players is driving growth.
However, with inflationary pressures impacting sales of non-food/ general merchandise, gross margins are yet to revert to pre-pandemic levels. The operating profit margin is expected to remain range-bound at 5-6%, Icra said. Entities in the agency’s sample set are likely to increase their retail area by about 15% in FY23, entailing a capital outlay of `2,000 crore.
Sakshi Suneja, vice president and sector head, Icra, said, “F&G sector remained resilient during the Covid waves and reverted to pre-Covid level of sales in Q3 FY2021 itself. Demand for essential products remained strong in year-to-date FY23 as well, with entities in our sample set expected to surpass their pre-pandemic levels of FY20 by about 36% in FY23.”
