A broad-based demand revival, with increased footfalls and recovery in discretionary consumer spending, will help the organised brick and mortar (B&M) retail sector’s revenue reach the pre-pandemic mark of Rs 5.7 lakh crore with a 23-25 per cent spurt next fiscal, Crisil Ratings said.

A study of 145 B&M retailers rated by the rating agency showed growth will ride on a low base as the sector is set to log an estimated 19-22 per cent revenue de-growth this fiscal due to the pandemic.

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“For the record, sales had recovered to over 80 per cent of pre-pandemic levels in the third quarter and are expected to recover almost fully by the close of the current quarter,” Crisil said in a statement.

“The rate of recovery has varied across segments, with the food and grocery (F&G) retail segment rebounding faster than discretionary segments such as fashion and apparel retail. The consumer durables and electronics retail segment has also recovered relatively swiftly owing to lifestyle changes spurred by the lockdown restrictions.”

According to the Crisil, operating profitability is also expected to recover sharply next fiscal. Along with higher revenue, this will enable a recovery in cash accruals, benefitting debt metrics and consequently stabilising credit profiles in the sector.

“The recovery in revenue and continuation of a part of the cost rationalisation measures adopted will help resurrect operating profitability for B&M retailers to the pre-pandemic level of 5-6 per cent next fiscal, from just 2 per cent this fiscal,” Anuj Sethi, Senior Director, Crisil Ratings was quoted as saying in a statement.

The impact on operating performance this fiscal is visible in revenue per square feet moderating by an estimated 40 per cent and 8 per cent for apparel and F&G, respectively.

As per the statement, cash accruals will be materially lower this fiscal, especially in discretionary segments such as apparel and consumer durables retail. This could affect debt metrics and credit profiles.

In addition, a fifth of Crisil-rated apparel and consumer durable B&M retailers had seen negative rating action in March-December 2020.

Some cushioned the impact on their credit profiles by preserving liquidity, deferring capital spend, limiting external debt, and raising equity, the statement added.