Binaifer Jehani, director, CRISIL Research: Slowdown of organised retail to impact their credit quality

Revenue growth in India’s organized retail sector is expected to slowdown to 15-20 per cent against the earlier projection of 35 per cent, says CRISIL. Temporary store closures, restricted mobility, and curtailed discretionary spending will be the main reasons for this slowdown. The report estimates operating margin of apparel retailers to remain moderate at 4-5 per cent for this fiscal, compared to earlier expectation of 7-8 per cent.

Retailers may have to take recourse to additional debt to plug near-term cash-flow mismatches, which could impact their credit quality.CRISIL-rated apparel retailers are expected to be better placed due to strengthen balance sheets, supported by equity raise of Rs 2,000 crore made last fiscal. To clear inventory and attract footfalls, retailers may offer higher discounts, especially during initial months of store reopening, and this could impact profitability. However, renegotiation of rental arrangements and trimming of employee cost, which together account for 20 per cent revenue, will help keep operating margin at 4-5 per cent this fiscal, a slight improvement over 3-4 per cent last fiscal, but much below the pre-pandemic level of 9 per cent.