Avenue Supermarts Limited — Q1 FY24 earnings call

Call held 26 Jul 2023

Management summary

DMart delivered strong FY23 recovery with revenue of ₹41,800 Crore and 8.7% EBITDA margin as post-COVID normalization continued. Like-for-like growth was 11% on a comparable H2 basis. GMA contribution declined but management viewed it as structural rather than concerning. Key positive was significantly increased confidence in DMart Ready economics - '90% of anxiety gone' about potential losses. Inventory efficiency improved dramatically to 28.8 days from 36.5.

Highlights

  • FY23 standalone revenue ₹41,800 Crore; EBITDA margin 8.7%; PAT margin 6.1%; net cash flows ₹3,113 Crore

  • Opened 40 stores in FY23; added 1.9 million sq ft; revenue per sq ft ₹31,000 (lower due to larger stores)

  • Like-for-like growth 24.2% for 2-year period; 11% for H2 on more comparable basis

  • Bill cuts grew from 18.1 Crore to 25.8 Crore

  • GMA contribution declined significantly, impacting gross margins; food & non-food FMCG stable

  • Inventory days improved from 36.5 to 28.8 days; return ratios trending back to pre-COVID levels

  • DMart Ready: 90% of anxiety about losses gone; confident e-commerce can't lose too much money

  • Added 10 new cities for DMart Ready; started pharmacy business as brick-and-mortar complement

Key financials

  1. Revenue from Operations (Standalone) ₹41,800 Cr
  2. EBITDA Margin 8.7%
  3. PAT Margin 6.1%
  4. Net Cash from Operations ₹3,113 Cr
  5. Bill Cuts ₹25.8 Cr
  6. Revenue per sq ft 31,000 Rs per sq ft
  7. Inventory Days 28.8 days

What they filed

Q1 FY27: revenue up 15.1%, net profit up 12.8% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue14,050 15,565 14,462 15,932 16,219 +15%17,613 +13%17,204 +19%18,343 +15%
EBITDA1,105 1,235 981 1,313 1,230 +11%1,481 +20%1,231 +25%1,527 +16%
Net profit710 785 620 830 747 +5%923 +18%725 +17%936 +13%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • DMart Stores (Standalone)
    ₹41,800 Cr Revenue
  • Avenue E-Commerce (DMart Ready)
    24 Cities

Guidance & targets

Store Expansion

  • Store opening run rate Store Expansion · FY24 · Medium confidence Maintain past run rate (~40 stores/year)
    our intent and objective is obviously to maintain a run rate of the past

    — Neville Noronha

E-Commerce

  • DMart Ready profitability outlook E-Commerce · 2-3 years · Medium confidence Cannot lose too much money; margin TBD in 2-3 years
    90% of the worries that we had about how much money we are going to lose has actually gone... it can't lose too much of money

    — Neville Noronha

Risks & concerns

  • GMA contribution structural decline impacting gross margins

    medium

    GMA contribution declined significantly from pre-COVID levels. Higher food/FMCG mix has lower margins. Management accepted this as new normal.

    Both acknowledged

  • Revenue per sq ft below pre-COVID due to larger stores

    low

    ₹31,000 per sq ft vs pre-COVID ₹32,879 attributed to larger store sizes. Management focuses on ROI per store rather than revenue per sq ft.

    Management downplayed

Areas of evasion (3)

  • Specific store opening numbers
  • E-commerce profitability timeline
  • Private label details

Q&A highlights

3 direct
GMA contribution decline and structural shift Direct
general merchandise and apparel contribution has been lower than the past trends... consequently, that is why our gross margins have reduced in the recent past

GMA decline from ~27% to ~23% is structural not cyclical, with direct gross margin impact; management not attempting to reverse it

DMart Ready confidence significantly improved Direct
all the worries that we had about how much money we are going to lose and how this business is going to trend is actually 90% gone

Major shift in management confidence on e-commerce economics; reduces key risk narrative around DMart Ready

Inventory efficiency improvement Direct
if General merchandise and apparel which tend to have more inventories, if that is not doing too well, the inventory by itself also gets corrected

Inventory days improving from 36.5 to 28.8 demonstrates model's self-correcting nature as category mix shifts

1 min read 4 chapters

Detailed narrative

Strong Post-COVID Recovery Continues

FY23 revenue reached ₹41,800 Crore with 8.7% EBITDA margin. Bill cuts grew from 18.1 to 25.8 Crore. Return ratios trending back to pre-COVID levels. Inventory efficiency dramatically improved to 28.8 days from 36.5 days, partly due to lower GMA inventory mix.

GMA Structural Decline Accepted as New Normal

General Merchandise & Apparel contribution declined significantly with direct gross margin impact. Management accepted this as structural rather than cyclical, driven by specialist competition in apparel and format's natural evolution toward food-heavy mix as stores mature. Higher food FMCG mix compensates through volume and footfall.

DMart Ready Confidence Transformation

Management tone on e-commerce shifted dramatically with '90% of anxiety gone'. Added 10 cities in pilot format. Key insight: grocery e-commerce 'cannot lose too much money' unlike marketplaces. Cost will be higher than brick-and-mortar but manageable. 2-3 year visibility expected on margin side. Also started complementary pharmacy business.

Steady Store Expansion With Model Discipline

Opened 40 stores adding 1.9 million sq ft. Revenue per sq ft at ₹31,000 (lower due to larger stores, not performance). Real estate strategy unchanged - cluster-based, own rather than lease. Management focused on ROI per store rather than vanity metrics like revenue per sq ft.

This is an AI-generated summary of a publicly available earnings call transcript.
View original transcript

More Consumer Services earnings calls