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Mall operators in India are predicted to experience a 7-9% increase in revenue during the current fiscal year, despite the high-base effect from last year, according to a recent analysis conducted by Crisil. The credit rating agency examined 28 malls across the country, revealing that the pandemic prompted operators to cut costs by strategically managing manpower and reducing overheads, leading to a more streamlined operational structure.
Crisil anticipates that strong retail sales will enable mall operators to boost revenue as a 95% occupancy rate leads to higher rental rates for new leases. Senior Director of CRISIL Ratings, Mohit Makhija, explained that 10-15% of mall operators' revenue is tied to retail sales through revenue sharing, which is expected to grow this fiscal year. Furthermore, operators are set to receive contractual rent increases of 4-5%.
These predictions suggest that revenue will reach 125% of the pre-pandemic levels seen in fiscal 2020. In fiscal 2023, the lifting of mobility restrictions resulted in a significant increase in footfalls, and a substantial 60% revenue growth, reaching 116% of pre-pandemic levels.
Anand Kulkarni, Director of CRISIL Ratings, noted that cost efficiency measures implemented during the pandemic are likely to enhance profitability, with operating margins projected at 70% for the current fiscal year, compared to the pre-pandemic level of 65-68%. Additionally, improved leverage through equity infusion will maintain stable credit risk profiles. Continued investor interest in the sector, through vehicles such as real estate investment trusts (REITs), also bodes well for the industry.
In recent years, mall operators have been focusing on diversifying their tenant mix to include a greater variety of retail and entertainment options, such as multiplexes, food courts, and gaming zones. This shift has helped to attract a broader customer base and increase footfall, contributing to the overall revenue growth. Moreover, the integration of digital technology and e-commerce into the mall ecosystem has further driven the sector's expansion, allowing for a seamless online-offline shopping experience and improved customer engagement.
With the easing of COVID-19 restrictions and the acceleration of vaccination campaigns, consumer confidence is gradually returning, driving increased spending on discretionary items and leisure activities. This trend is expected to continue as the economy recovers, and people become more comfortable visiting malls and engaging in social activities.
Mall operators are also adopting sustainable and eco-friendly practices, such as implementing energy-efficient lighting, waste management systems, and water conservation initiatives, which not only reduce operational costs but also appeal to environmentally conscious consumers.
Furthermore, the government's supportive policies, such as relaxation in foreign direct investment (FDI) norms and the introduction of the Model Shops and Establishments Act, have contributed to the growth of the retail sector, creating a conducive environment for mall operators to thrive.
In conclusion, mall operators in India are poised for a 7-9% revenue growth in FY24, thanks to high occupancy and leasing rates, alongside cost-saving measures implemented during the pandemic. Strong retail sales, the diversification of tenant mix, and investor interest in the sector provide further support for a positive outlook in the coming year. As the economy recovers and consumer confidence returns, mall operators will likely continue to adapt and innovate, capitalizing on new opportunities and trends in the evolving retail landscape.
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