A CRISIL Ratings analysis reveals mall operators expect 10-12% revenue growth this fiscal, driven by rental escalations and improved occupancy. Overall mall occupancy is projected to increase from 89% to 92-93%, with established malls maintaining 95% occupancy. Retail consumption growth has moderated to 3-5% in the first half due to heat waves, but is expected to recover. Operators maintain strong Ebitda margins around 70%, with debt-to-Ebitda ratio anticipated to improve to 2.6-2.8 times, supported by steady cash accruals and controlled capital expenditure.
Mall operators are projected to achieve a robust revenue growth of 10-12% this fiscal, following last year's 15% expansion. This growth is anticipated to stem from multiple factors, including contractual rental escalations, improved occupancy and increased tenant revenues driven by consumption growth.
According to a CRISIL Ratings analysis of 32 Grade A malls, the sector's credit profiles will remain stable. The primary focus for mall operators this fiscal will be maximizing occupancy in recently commissioned malls, with ongoing construction projects still in early stages. Gautam Shahi from CRISIL Ratings predicts overall mall occupancy will rise to 92-93% this fiscal, up from 89% last fiscal. This increase will be primarily driven by newly launched malls while established malls are expected to maintain a stable occupancy of around 95%. Key growth drivers include full-year impact of new malls, steady rental escalations of 4-5%, and moderate retail consumption growth.
Retail consumption growth has moderated to 3-5% in the first half of this fiscal, compared to 12.5% in the same period last fiscal. This slowdown is attributed to a high base effect and heat wave, with Tier-I cities experiencing more significant moderation than Tier-II cities. However, consumption is expected to recover in the second half, supported by an anticipated above-normal monsoon and festive/wedding season. The impact on mall operators will be limited as revenue sharing represents only 10-15% of total revenue. Operators have maintained operational efficiency, with Ebitda margins consistently around 70% and expected to remain stable this fiscal. Debt levels remain controlled despite portfolio expansion. Cash accruals are projected to sufficiently fund capital expenditure plans of 2-3 million square feet, expected to be operationalized over the next 2-3 years.
Snehil Shukla, another CRISIL Ratings official, expects improvements in financial metrics. The debt-to-Ebitda ratio is anticipated to improve to 2.6-2.8 times by fiscal-end, from 2.9 times last fiscal. The debt service coverage ratio is expected to remain strong at 2.2 times, slightly down from 2.3 times previously. The analysis concludes with a cautionary note about potential large debt-funded acquisitions, which will require careful monitoring.
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