Avenue Supermarts GOOD VALUE FOR MONEY!
Avenue Supermarts
GOOD VALUE FOR MONEY!
Avenue Supermarts Ltd. conducts business operations under the brand name D-Mart. It is a chain of hypermarket stores founded by Radhakishan Damani in 2002. The company was listed in March 2017. Brands such as D-Mart Minimax, D-Mart Premia, D-Homes, Dutch Harbour, etc are owned and operated by Avenue Supermarts. The company aims to be the lowest price retailer in its area of operations.
Currently, the company operates around 176 stores in 11 states and 1 Union territory of India. D-Mart has a range of product offerings, which include food products such as dairy, staples, groceries, snacks, frozen products, processed foods, etc.; non-food products such as home care products, personal care products, toiletries, etc. and general merchandise and apparel products that include bed and bath, toys and games, crockery, plastic goods, garments, footwear, utensils and home appliances.
As a growing retail chain, D-Mart strives to satisfy its consumers by expanding the number of its operational stores to offer quality products at affordable prices. Over the years, D-Mart has been able to post stable financial performance by maintaining cost efficiencies.
Economic and industry overview
As per reports, India’s retail market size is around US$ 822 billion, of which 11 per cent is contributed by the organised segment, excluding e-commerce, of the overall retail market for FY19. In the next 5-6 years, the share is expected to increase to at least 16 per cent and the organised retail market is expected to grow at a CAGR of 20 per cent. During FY2018-19, India continued on a strong growth path and is expected to grow at a healthy 6.8 per cent, says National Statistical Office. This has been backed by the increasing government expenditure, growing consumption rates and structural reforms. According to the Finance Ministry, the Goods and Services Tax (GST), which was rolled out in 2017, has increased collection of indirect taxes, which crossed Rs.11.7 lakh crore as well as of direct taxes, which crossed Rs.10 lakh crore in FY18-19. GST has been instrumental in creating a level-playing field for all businesses in the country. The rate cuts by the Reserve Bank of India are expected to boost the economic activity, which had sagged due to decreased consumption and demand because of slowing economic growth. The country's forex reserves remained robust at more than US$ 400 billion.
For FY19-20, with increase in ease of doing business in India, the economy is expected to grow at 7.3 per cent with robust consumption and fiscal policy driving the growth. The government’s focus on infrastructure and successful implementation of policies and programmes will also support the nation’s growth.
Business overview
As an emerging national supermarket chain, Avenue Supermarts Limited focuses strongly on value-retailing. The company opened its first store in Mumbai, Maharashtra, in 2002. As part of the company’s expansion strategy, it has 176 operational stores having a total retail business area of 5.9 million sq.ft. Out of these, 70 stores are located in Maharashtra, 34 stores in Gujarat, 16 in Karnataka, 21 in Telangana, 11 in Andhra Pradesh, 6 in Madhya Pradesh, 3 in Chhattisgarh, 1 store each in NCR and Daman, 4 in Tamil Nadu, 5 in Rajasthan and 4 in Punjab. The company focuses on offering value retailing to the customers by using the company’s main operational and marketing principle ‘Everyday Low Cost and Everyday Low Price (EDLC/EDLP)’. The company’s stores have been well-equipped with advanced technology for efficient operational management. The use of latest technology makes procurement, sales, supply chain and inventory control processes easy and also provides updated information which can be used by the business on a daily basis. Hence, procuring merchandise from distribution centres or directly from suppliers has become fast and efficient and it allows to efficiently manage the inventory levels so the company can respond to the needs of the consumers and their preferences in a better way.
Financials
Avenue Supermarts has sustained its financial performance over the years by continuously focusing on new growth and expansion opportunities. While setting up new stores, the company had to tackle challenges relating to differences in laws, languages and business nuances in different states. The net sales of the company on standalone baisis for the first quarter of FY20 stood at Rs.5780.53 crore, an increase by 14.84 per cent QoQ as compared to Rs.5033.37 crore for the fourth quarter of FY19. After adjusting expenses relating to purchases of stock-in-trade, employee benefit schemes, depreciation, etc. in the first quarter of the current fiscal, the company was able to maintain a PBT of Rs.516.15 crore, showing an increase of 62.77 per cent QoQ as compared to Rs.317.09 crore in Q4FY19. The company's net profit grew by 65.27 per cent QoQ in Q1FY20 to Rs.335.31 crore from Rs.202.89 crore in the previous quarter of the same fiscal.
Comparing the company’s quarterly results on a YoY basis, in the first quarter of FY20, Avenue Supermarts reported net sales of Rs. 5814.56 crore, an increase of 27.07 per cent as against the net sales of Rs.4575.79 crore for the corresponding quarter of the previous fiscal. This suggests that the company’s Same Store Sales Growth (SSSG), which includes operating expenditure, turnover per square feet and revenue run rate of newly opened stores, has been encouraging and portrays a successful growth path for the future. Its PBT also hugely expanded by 32.27 per cent for the first quarter of FY20 to Rs.506.87 crore as compared to Rs.383.22 crore for the first quarter of FY19. For the first quarter of FY20, the net profit increased by 31.87 per cent to Rs.323.06 crore when compared with Rs.244.98 crore for the first quarter of the previous fiscal.
On the annual front, on a consolidated basis, the company’s revenue from operations for FY19 were Rs.20004.52 crore, showing an increase of 33 per cent when compared to Rs.15033.20 crore for FY18. For FY19, PBT increased by 18.14 per cent to Rs.1421.94 crore as compared to Rs.1203.59 crore for FY18. The company's net profit for FY19 was Rs.902.46 crore, which is a significant rise by 14.55 per cent compared to net profit of Rs.787.80 in FY18.
Future Outlook
Since the government has adopted a liberal foreign direct investment (FDI) policy in both single and multi-brand retail, it is expected to further boost retail investments in the country. This move has been attracting sizeable investments, either in the form of greenfield investments or in the form of facilitators of consolidation through acquisitions. Increasing investments will not only result in the expansion of the retail market offerings, but will also bring better quality and quantity of products and services to the customers. This shows a probable rise in the consumption demand for at least necessity goods. But as the economy is currently facing slowdown as indicated by decelerating GDP, decrease in rural spending, increasing commodity prices and more competition from e-retail industry, the company needs to tackle these challenges even as it faces structural issues regarding its new store openings. The company will have to remain agile and be adaptable to the changes in the market.
Conclusion
Despite a few threats which the company encountered in the financial year ended March 2019, the overall future outlook looks positive. With the change in the industry’s demand, the ‘everyday low prices’ principle and cluster-based expansion remains the company's strategy to mitigate the market instability. While the retail chain witnessed lower-than-expected store openings in FY19, the management was successful in implementing the needed strategic margin correction. It is set to accelerate the store openings through its already owned stores by following an aggressive approach that focuses on increasing volumes that are driven by margins from operating leverage only. Also, on the financial front, the company depicts a promising future financial performance as it has a low D/E ratio of 0.12x with an interest coverage ratio of 31.70x, which means that the company is in a better position to pay interest on its debt. As Avenue Supermarts continues to gain the confidence of the investors, we urge our reader-investors to HOLD this stock.