Avenue Supermarts Limited — Q4 FY22 earnings call

Call held 4 Aug 2022

Management summary

DMart's FY22 annual call reflected a strong post-COVID recovery with highest-ever store additions of 50. Management expressed significantly increased confidence in the e-commerce business, noting it can scale without excessive capital. GMA contribution remained below pre-COVID levels with mass discretionary spending under stress, though recovery was underway. The company maintained its ownership-model philosophy, adding larger stores for future headroom.

Highlights

  • Strong post-COVID recovery with revenue and profitability back to normal levels

  • Added 50 stores in FY22, highest ever; total retail business area expanded by 2.7 million sq ft

  • Total bill cuts of 18 crores for the year; average bill value surged due to COVID-driven behavior change

  • GMA (General Merchandise & Apparel) contribution still below pre-COVID 27-28% levels but recovering

  • DMart Ready e-commerce business more than doubled; operating in 12 cities as of June 2022

  • Zero external debt; Rs.416 crores of Ind AS 116 lease liabilities only

  • Fixed asset turnover expected to return to ~4x in FY23

  • Mass-level discretionary spending still under stress; premium segment performing well

Key financials

  1. Bill Cuts (Annual) ₹18 Cr
  2. New Stores Added 50 stores
  3. New Area Added 2.7 million sq ft
  4. Lease Liabilities (Ind AS 116) ₹416 Cr

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
    50 stores Store Additions
  • DMart Ready (E-commerce)
    12 cities Cities100 % (more than doubled) Revenue Growth

Guidance & targets

Operations

  • Fixed Asset Turnover Operations · FY23 · High confidence ~4x

    From Below 4x (COVID-impacted) today

    it is going to come back to around 4 in this financial year

    — Neville Noronha

  • Gross Margin Operations · Ongoing · High confidence ~15%
    with this 15% kind of GM we are able to attain EBITDA margin of 9% plus

    — Neville Noronha

Expansion

  • Store Additions Expansion · FY23+ · Medium confidence ~50 stores per year pace

    From Previously 15-20, then 38 today

    Earlier, we used to add 15-20 stores. Then we moved from 20 to 38, then now 50

    — Neville Noronha

Risks & concerns

  • GMA contribution below pre-COVID levels

    medium

    GMA share still not back to 27-28% pre-COVID levels. Mass discretionary spending under stress especially for lower middle-class customers.

    Both acknowledged

  • E-commerce profitability uncertain

    medium

    DMart Ready doubled revenue but management explicitly states 'Whether it will make money or not we don't know, we've still not reached there.'

    Management acknowledged

  • Revenue per square foot dilution from larger stores

    low

    Revenue per sq ft flat due to larger store sizes. Management says this is not concerning in ownership model as stores are built for future growth headroom.

    Analyst downplayed

  • Quick commerce competition emerging

    low

    Quick commerce was raised but DMart focused on its own delivery model improvements. Management noted delivery speed improvements needed in some cities.

    Analyst acknowledged

Areas of evasion (2)

  • Specific financial guidance not given
  • Average bill value breakdown not fully disclosed

Q&A highlights

3 direct
GMA contribution and mass discretionary stress Direct
anything that is mass level consumed... I think that kind of buying is getting a bit postponed. There's a little bit of stress you see there

GMA still below 27-28% pre-COVID levels due to mass discretionary spending stress; impacts margin mix

Asked by Vivek Maheshwari (Jefferies)

DMart Ready e-commerce scalability Direct
those problems are of the past, that anxious thinking is behind us. I think we can scale up this business by keeping our costs under control

Significant shift in management confidence on e-commerce - capital intensity concerns resolved, though profitability not yet achieved

Asked by Vivek Maheshwari (Jefferies)

Same-store performance and cohort analysis Direct
in these cohorts, if any particular store is not performing well, it's primarily for 1 reason only: there's another DMART store which has opened close by

Reveals DMart's main SSSG headwind is self-cannibalization from new store openings, not competition

Asked by Richard Liu (JM Financial)

1 min read 4 chapters

Detailed narrative

Post-COVID Recovery Complete with Record Store Expansion

DMart added a record 50 stores in FY22, expanding by 2.7 million sq ft. Revenue, EBITDA and PAT fully recovered to normal levels. Customer behavior showed lasting COVID changes - higher average bill values persisting, which management called 'very, very good for us' from an operational efficiency standpoint with less crowd and more revenue.

E-Commerce Confidence Inflection Point

DMart Ready more than doubled revenue and expanded to 12 cities. This was a turning point in management confidence - previously anxious about capital intensity, Neville stated 'those problems are of the past.' The business model proved scalable with costs under control, though profitability remained uncertain. No plans for quick commerce; focus on next-day delivery in DMart's own model.

Larger Stores Strategy for Future Growth

Revenue per sq ft remained flat due to intentionally larger stores, but management was unconcerned given the ownership model (vs rental). Larger stores provide headroom for future growth as categories expand and store throughput increases. Inventory days returned to pre-COVID levels showing strong assortment management and buying team execution.

GMA Recovery and Cohort-Based Store Performance

GMA contribution was recovering but still below 27-28% pre-COVID levels, with mass discretionary spending under stress. Management revealed their key performance framework: age-based cohort analysis where the only material reason for underperformance is self-cannibalization from new DMart stores nearby. Store LFL growth targets are simply 'at least inflation rate' for older stores.

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