Overview

The supermarket chain of DMart stores is owned and operated by Avenue Supermarts Ltd. (NSE:DMART). The company has its headquarters in Mumbai.

DMart is a one-stop supermarket chain that aims to offer customers a wide range of basic home and personal products under one roof. Each DMart store stocks home utility products - including food, toiletries, beauty products, garments, kitchenware, bed and bath linen, home appliances and more - available at competitive prices that its customers appreciate. The company's core objective is to offer customers good products at great value.¹

DMart was started by Mr. Radhakishan Damani and his family to address the growing needs of the Indian family. From the launch of its first store in Powai in 2002, DMart today has a well-established presence in 216 locations across Maharashtra, Gujarat, Andhra Pradesh, Madhya Pradesh, Karnataka, Telangana, Chhattisgarh, NCR, Tamil Nadu, Punjab and Rajasthan. With its mission to be the lowest priced retailer in the regions the company operate, its business continues to grow with new locations planned in more cities.

Industry Overview

Over the years, retailing in India has been one of the most dynamic and fast-paced industries, which has travelled through different phases. In 2019, India‘s GDP is estimated at `141 trillion, of which private consumption constituted 57%. Retail sectors forms around ~80% of private consumption at constant prices. India‘s GDP growth will therefore translate to an increase in the merchandise retail market, from `34 trillion in Fiscal 2014 to `66 trillion in Fiscal 2020.²

Sector growth is primarily driven by rapid urbanisation, changing demographic profile, increasing middle-class disposable incomes, increased digitalisation and technology adoption, evolving preferences, brand awareness and rising discretionary spending. The rising e-commerce wave also significantly contributed to the overall growth of the sector.

Organised Brick & Mortar retail accounted for ~7.5% of total retail  market in Fiscal 2019. Overall, organised retail grew ~21%  on-year in Fiscal 2019, with B&M retailers registering growth of ~18% on-year.

The current pandemic could significantly alter new store roll out strategy for the industry. Several retail businesses are witnessing extended store closures, lower footfalls and lean demand. Consumers are also focused more on consumption of essentials. Industry growth for the next few years will therefore depend on the severity of the pandemic in the country.

E-Commerce has always been a focus area in the industry. The COVID-19 situation has further amplified the growing importance of this channel. Online grocery is still a relatively under-penetrated segment within E-retail, but has gained significant attention in the last few months as consumers have rapidly adopted online ordering of household grocery and other items. Apart from this, e-retailers continue to focus on existing business segments, such as electronics, apparel and fashion.

Overall, the retail sector faces key threats in the form of economic headwinds such as GDP slowdown due to COVID-19, decreased rural spending and rising commodity prices as well as e-tailing, which have affected the growth of the brick and mortar businesses. Unexpected yet unavoidable situations such as the recent pandemic have also impacted the performance of the retail industry, as people remain indoors and mostly consume essential goods and services. Organisations serving in the industry, thus will need to remain agile and adaptable, to identify these threats and work towards their effective mitigation.

Business Overview

Avenue Supermarts Limited (DMart) is a national supermarket chain, with a focus on value-retailing. The company offer a wide range of products with a focus on the Foods, Non-Foods (FMCG) and General Merchandise & Apparel product categories.

The company launched its first store in 2002 in Mumbai, Maharashtra, and since then have grown to 214 stores with a retail business area of 7.8 million sq. ft. spread across Maharashtra (76 stores), Gujarat (37), Telangana (24), Karnataka (20), Andhra Pradesh (17), Madhya Pradesh (11), Tamil Nadu (10), Rajasthan (7), Chhattisgarh (5), Punjab (5), Daman (1), and NCR (1).

The company remain focussed on its strategy of offering its customers good quality products at great value, based on the Everyday Low Cost/Everyday Low Price (EDLC/EDLP) principle.

The company's store offerings provide its customers with a distinctive shopping experience, comprising of a wide range of everyday value retail products sold in a modern ambience and with the feel of a large retail mall. The company believe its endeavor to facilitate one-stop shop convenience for its customers’ everyday shopping needs, along with its competitive pricing due to its local market knowledge, careful product assortment and supply chain efficiencies, has helped it achieve steady growth.

Over the years DMART has seen steady growth in the number of stores and consequently its retail business area.

The company's operations are ably supported by a network of distribution centres and packing centres. As of March 31, 2020 the company had 36 distribution centres and 7 packing centres.

The company's total number of bill cuts have increased steadily. The company's total number of bill cuts was Rs 20.1 crores in FY2019-20 compared to Rs 17.2 crores during FY2018-19.

The company's annualised revenue from sales per retail business area sq. ft. (#) was Rs 32,879 in FY2019-20 and Rs 35,647 in FY2018-19.

Financial Highlights

On standalone basis, the total income for FY 2020 was Rs 24,738.34 crore, which is 23.89 % higher over the previous year’s income of Rs 19,967.66 crore. The company's total income on consolidated basis for FY 2020 was Rs 24,930.19 crore as against Rs 20,052.87 crore during FY 2019.

On standalone basis, the net profit after tax (PAT) for FY 2020 stood at Rs 1,349.89 crore as against previous year’s net profit of Rs 936.35 crore thereby recording a growth of 44.17%. The company's net profit after tax (PAT) on consolidated basis for FY 2020 amounted for Rs 1,300.98 crore as compared to Rs 902.46 crore in the previous year.

Recent developments

October 17, 2020: Avenue Supermarts Ltd. (ASL), declared its financial results for the quarter and half year ended September 30, 2020.³

Total Revenue for the quarter ended September 30, 2020 stood at Rs. 5,306 crore, as compared to Rs. 5,991 crore in the same period last year. Earnings before Interest, Tax, Depreciation and Amortization (EBITDA) in Q2FY21 stood at Rs. 330 crore, as compared to Rs. 517 crore in the corresponding quarter of last year. EBITDA margin stood at 6.2% in Q2FY21 as compared to 8.6% in Q2FY20.

Net Profit stood at Rs. 199 crore for Q2 FY21, as compared to Rs. 323 crore in the corresponding quarter of last year. PAT margin stood at 3.7% in Q2FY21 as compared to 5.4% in Q2FY20

Basic Earnings per share (EPS) for Q2FY21 stood at Rs. 3.07, as compared with Rs. 5.17 for Q2FY20.

Total Revenue for H1FY21 stood at Rs. 9,189 crore, as compared to Rs. 11,805 crore in the same period last year. Earnings before Interest, Tax, Depreciation and Amortization (EBITDA) in H1FY21 stood at Rs. 441 crore, as compared to Rs. 1,114 crore during H1FY20. EBITDA margin stood at 4.8% in Q2FY21 as compared to 9.4% in Q2FY20.

Net Profit stood at Rs. 239 crore for H1FY21, as compared to Rs. 646 crore in H1FY20. PAT margin stood at 2.6% in Q2FY21 as compared to 5.5% in Q2FY20.

Basic Earnings per share (EPS) for H1FY21 stood at Rs. 3.68, as compared with Rs. 10.35 for H1FY20.

DMart (Brick and Mortar) Business Overview

Lockdown restrictions due to Covid-19 were further eased during this quarter. Within the continued uncertainty from Covid-19, its business has seen improvement and it continues to gradually progress towards prepandemic levels. Month-on-Month sales have improved during this quarter – August was better than July and September was better than August. The highlight being that footfalls continue to be significantly lower than preCovid levels but basket values are significantly higher than pre-Covid levels. Both these data points are trending towards pre-Covid levels. Footfalls are getting better and basket values are reducing month over month.

Two years and older DMart stores did 87.5% of September 2019 sales in the month of September 2020. DMART has a total of 158 stores which are 2 years or older. Since August, most of its stores are operating at pre-Covid operating hours and some stores are operating longer hours than before Covid-19. Longer hours are to improve social distancing and giving more options to its shoppers.

FMCG and staples demand remains robust. September 2020 sales of all stores exceeded September 2019 sales for FMCG and Staples while General Merchandise and Garments did lesser sales in the same period. However, discretionary consumption has seen significant improvement over Q1FY21. DMART was at 22.7% revenue contribution from General Merchandise and Apparel business in Q2FY21 as compared to the usual 27.3% contribution for the year. The company couldn’t sell this category of products for nearly 2 months of Q1FY21 due to regulatory restrictions and once permitted the company did insignificant sales due to tightening of discretionary spend by consumers. Almost all of the shopping in Q1FY21 was need based and essential in nature. In light of that, Q2FY21 sales contribution from General Merchandise and Apparel is encouraging.

New Stores Opening

The company continue to focus on new store openings and have opened six new DMart stores during the quarter. DMART has closed two of its Mumbai stores for customers and converted them into fulfillment centers (FC) for its ECommerce business. One each in Mira Road and Kalyan. Both these locations have an alternate DMart store within 4 kms.

D-Mart operator Avenue Supermarts' profit rises 16%, revenue up 11% ⁴

January 9, 2021; Mumbai-based Avenue Supermarts, the operator of supermarkets chain D-Mart, has reported a 16.4 percent year-on-year growth in consolidated profit for the quarter ended December 2020.

The profit increased to Rs 446.97 crore during the quarter compared to Rs 384.04 crore in the same period last year. The sequential growth in teh bottom line was at 125.1 percent.

Revenue from operations rose 10.8 percent year-on-year to Rs 7,542 crore in October-December, while the quarter-on-quarter growth was 42.1 percent.

"The quarter has seen further improvement in our business and financial metrics. Our overall sales and sales mix is now trending very close to our usual times except for specific customer consumption changes post COVID-19. Apparel, laundry, footwear, travel and such relevant out of home usage categories are taking more time to recover," CEO & Managing Director Neville Noronha said.

"Agile OPEX management along with a good surge in festival shopping allowed us to deliver a significantly better quarter than the previous two quarters. However, December month didn't trend as well as the festival months of October and November," he added.

Two years and older D-Mart stores did around 96 percent of December 2019 sales in December 2020, said the company, which has 162 stores that are two years or older.

"Restricted store operations in certain cities post-Diwali due to night curfews and weekend closure led to significantly larger declines in those stores versus the same period last year," the company said

Operating numbers, too, were good for the quarter. Earnings before interest, tax, depreciation and amortisation (EBITDA) grew by 15.5 percent year-on-year to Rs 689.12 crore with margin expansion of 37 bps YoY at 9.14 percent.

The sequential growth in EBITDA was 109.1 percent and margin 293 bps due to a low base. The first half of the financial year 2020-21 was impacted by COVID-19-led lockdown restrictions.

Noronha said Avenue continued to face inconsistent supplies from the non-FMCG sector. "Raw material prices are also going up. Availability in certain categories is likely to get worse before getting better. This could therefore have an impact on sales mix and margins in the near term," he added.

References

1. ^ https://www.dmartindia.com/about-us
2. ^ https://api.dmartindia.com/corporate/content/file/v1/clW2bTVf5wyM4s2CKyU2KLRf/Annual%20Report%202019%20-20%20and%20AGM%20Notice
3. ^ https://api.dmartindia.com/corporate/content/file/v1/4EPmqVJMZpg4xIm9M4ZswmFe/ASL%20-%20Financial%20Results%20for%20the%20Q2%20(FY%2021)
4. ^ https://www.moneycontrol.com/news/business/earnings/d-mart-operator-avenue-supermarts-profit-rises-16-revenue-up-11-6324211.html