Revenue of mall operators is set to halve this fiscal because of the Corona pandemic-driven lockdowns, according to CRISIL’s analysis on top malls in the country.
These malls have a total rated debt of Rs.4,200 crore and cover 7.5 million square feet, with pan-India presence. These have strong sponsors and high debt service coverage ratio (DSCR) of 1.5 times on average. Hence, notwithstanding pressure on revenues, impact on the credit quality of CRISIL-rated malls is expected to be limited in the near term.
Much of the impact on mall revenue is because multiplexes, food courts, restaurants and gaming zones have not yet opened in many locations as per government orders. These businesses, which contribute 22 per cent to total revenues, have borne the brunt of the impact on operations due to social distancing and are also expected to take the longest to recover.
For the other categories, such as apparels, cosmetics, electronics, and bookstores, which contribute 75 per cent of mall revenues, consumption is still low at 30 to 35 per cent of previous years’ numbers in the first month of operations post-re-opening.
With revenues dented, and recovery expected to be slow, these businesses have started renegotiating their contracts with mall owners – for waivers in lease payments, or discounts over the period of lockdown and in the medium term – thereby impacting mall revenues.
Says Sachin Gupta, Senior Director – Crisil Ratings, “We expect a 50 to 100 per cent lease waiver for the period of lockdown, followed by a 30 to 50 per cent concession in rentals in the current quarter and the next, which will reduce to 0 to 20 per cent in the quarter to March. A gradual build-up in revenue can be expected from the current quarter, though for the fiscal overall, a revenue loss of 45-50 per cent appears to be in order. The loss would get bigger if the lockdowns are extended or are re-imposed.”
Malls also face the risk of cannibalisation of revenue by online platforms. Increasingly, as customers get accustomed to online spending during the lockdown, there is a risk of some not returning to malls due to change in behaviour patterns.
This could lead to higher vacancies and pressure on rentals. CRISIL expects vacancies to inch up to over 10 per cent over the next 12 to 18 months compared with 4 per cent as of March 2020.