On 9th December 2021, ICRA published a press release where they projected a 75% recovery of pre-Covid rentals in FY 2022 for retail malls owing to the suppressed demand of customers and the resumption of multiplexes. For the unaware, ICRA Ltd. (formerly Investment Information and Credit Rating Agency of India Ltd.) is one of the best credit rating agencies in India.
Business at the shopping malls has been affected all over India since early March 2020, when Covid-19 was spreading throughout the country, only to be closed under lockdown from 24th March 2020. After the first lockdown, they were allowed to open from 8th June 2020, with several restrictions, such as operating at 50% capacity, maintenance of social distance, having temperature scanners on the entrance, etc.
Their business suffered to such an extent that certain malls allowed rental waivers. Following the end of 2020, 2021 was not very favorable for them either as there was a second wave of Covid-19 infections in India which prompted people to stay home and closure of malls for another 2 months.
Retail malls have witnessed a faster recovery rate after the second wave as compared to the first wave due to larger vaccination coverage and relaxed restrictions.
Ms. Anupama Reddy, Assistant Vice President & Sector Head, Corporate Ratings, ICRA, said in the release, ‘‘The recovery for the retail malls was sharper since August 2021 and the trajectory is expected to sustain in H2FY2022 driven by pent-up demand, high vaccination coverage, resumption of multiplexes which also coincided with the festive season. While the footfalls remain significantly lower than the pre-Covid levels, the average spend per footfall improved drastically since the Covid-19 pandemic indicating the fact that only serious buyers are visiting the malls now. In ICRA’s base case, the rental recovery of samples is expected to be up to 75% of pre-Covid levels for FY2022, as compared to the recovery of 49% witnessed during FY2021. However, a resurgence in fresh Covid-19 infections with any future waves leading to restrictions by state and central governments could hinder the expected recovery.”
Commenting on debt coverage metrics, Ms. Reddy added, “Weaker H1FY2022 due to the second wave of a pandemic is expected to impact the full-year FY2022 estimates with the projected DSCR estimated to be in the range of 0.80-0.85 times. The support from sponsors, debt service reserve, and undrawn credit lines (for a few issuers) have helped ICRA rated malls in meeting their obligations during the H1FY2022. With improvement in rental recoveries, there is no significant shortfall or major dependence on sponsors estimated in H2FY2022.”
Major Highlights of the release were:-
- Recovery of retail trading values was at 64% of pre-Covid levels for ICRA’s sample in Q2 FY2022 as against the recovery of 30% witnessed post the first wave in Q2 FY 2021.
- Categories such as hypermarkets, electronics, fashion and beauty have done extremely well with certain brands even exceeding pre-Covid sales.
- Department stores, food and beverage are observed to have moderate recovery in line with the improvement in footfalls.
- Multiplexes segment is expected to steep recovery from November 2021.
- Majority of the categories are expected to reach near normalcy by Q4 FY 2022 with variance depending on the mall and brand factors.
- Recovery post the second wave remains uneven, where recovery was led in the North in early June 2021 and visible in all other regions by the end of July 2021.
By Aman Agarwal