Avenue Supermarts' profitability comes below our, consensus estimateDMART - 3862 Change: -50.65 (-1.29 %)
D-Mart reported a subdued operational performance with profitability coming below our/consensus estimates in Q2FY23. As guided by the management in its pre-quarterly update, on a favourable base, Avenue Supermarts reported revenue growth of 36.6% YoY to Rs 10638.3 crore (three-year CAGR: 21%). Revenue per sq ft did witness marginal improvement on a sequential basis by ~2% to Rs 8580 but continues to remain below pre-Covid levels (Q2FY20: Rs 9210). With the discretionary product mix being impacted, gross margins for the quarter came in below our estimate at 15.1% (I-direct estimate: 15.6%). Share of GM & apparels was at ~25% during H1FY23 (FY22: 23%, pre-Covid levels: 28%). Other expenses grew significantly by 51% YoY (17% QoQ) to Rs 528 crore. Subsequently EBITDA margins declined 20 bps YoY to 8.4% (I-direct estimate: 9.4%).
The company believes it would be able to provide better value to its customers by managing its cost better and providing value for money in an inflationary environment. With the upcoming festive season, Q3FY23 would be a critical quarter to watch. We expect the company’s RoIC to improve in the current financial year driven by dual triggers of enhanced margins and better store throughput.