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  • 11 Jul 2022
  • ICICIdirect Research

AVENUE SUPERMARTS REPORTS IMPROVEMENT IN MARGINS OWING TO FAVOURABLE PRODUCT MIX

DMART - 5187 Change: -51.50 (-0.98 %)

News: On a favourable base, Avenue Supermarts reported strong revenue growth of 93.7% YoY to Rs 10038.1 crore (three-year CAGR: 20%). Gross margins expanded materially by 320 bps YoY to 16.3%. Owing to positive operating leverage, EBITDA margins improved by 570 bps YoY to 10.0% (I-direct estimate: 8.6%, Q1FY20: 10.3%). On a benign base, absolute EBITDA grew by 350% YoY to Rs 1008.2 crore (I-direct estimate: Rs 858.9 crore, three-year CAGR: 19%). Driven by robust operational performance and aided by a favourable base , the company recorded more than 6x jump in net profits to Rs 642.9 crore (three-year CAGR: 26%).

Views: Avenue Supermarts reported a healthy operational performance with strong beat on the profitability front. The key positive aspects being the company recording 12-quarter high gross and EBITDA margins owing to improvement in product mix (general merchandise & apparel which yields better margins).  Over the last three years company has expanded its square feet addition by an impressive three-year CAGR of 24% with average size of new stores being bigger (~50000+ vs. average 39000 sq. ft.). The new larger stores have never got an opportunity to function in normal circumstances over the last two years. Hence, the revenue throughput per sq. ft. remained below pre-covid levels (Q1FY20: Rs 9200, Q1FY22: Rs 3405, Q1FY23: Rs 8300). With the scenario now normalising and with scale kicking in, we expect the trajectory to improve in ensuing quarters. The management indicated that discretionary contribution mix is getting better. 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. We expect company’s RoIC to improve in current financial year driven by dual triggers of enhanced margins and better store throughput.

Impact: Positive