- 15 May 2023
- ICICI Securities
AVENUE SUPERMARTS REPORTS SUBDUED OPERATIONAL PERFORMANCE AMID WEAK DISCRETIONARY SPENDING
DMART - 4190 Change: 116.20 (2.85 %)News: D-Mart reported a subdued operational performance with profitability coming below our estimates in Q4FY23. As guided by the management in its pre-quarterly update, Avenue Supermarts reported revenue growth of 20.6% YoY to Rs 10594 crore (3-year CAGR: 19%). With the discretionary product mix being impacted, gross margins for the quarter came in below our estimate at 14.0% (I-direct estimate: 14.8%, Q4FY22: 15.0%). Absolute EBITDA grew by mere 4% YoY to Rs 771 crore (I-direct estimate: Rs 815 crore).
Views: Though the business scenario has normalised the general merchandise and apparel share continues to be lower than pre-covid level. Heightened competitive intensity and inflationary stress is probably curtailing the growth of discretionary products and resulting in the company reporting subdued margin. Over the last three years, the company has expanded its square feet addition by an impressive three-year CAGR of ~ 22% with average size of new stores being bigger (~55000+ vs. average 35000 sq ft). The new larger stores which were designed to provide more space for discretionary products have not been able to deliver higher growth of discretionary products inspite of the operating business scenario normalising in the last few quarters. Hence, the revenue throughput per square ft has remained below pre-Covid levels. The critical factors for an improved operational performance would be increase in revenue per square feet and enhancement in the gross margins.
Impact: Negative