In H1, mall foot traffic and rental rates are fueled by premium goods.

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.

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.

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.”