Avenue Supermarts' Earnings Missed Estimates. Will the Stock Fall?

On Saturday, Avenue Supermarts reported a 132.3% rise in its bottomline on a year on year (YoY) basis to Rs 1.2 bn for the quarter ended June 2021.

Revenues for the operator of the Dmart chain of hypermarkets also rose 31.3% to Rs 50.3 bn.

Strong earnings owing to low base

The company's YoY performance is mostly due to a weak base in the year-ago quarter when the national lockdown had devastated its earnings.

Earnings before interest, tax, depreciation, and amortisation (EBITDA) more than doubled to Rs 2.2 bn.

However, the strong performance by the company still missed estimates as the street was expecting the company's net profit to come in at Rs 1.6 bn.

The impact of the second wave is seen in company's sequential performance. Dmart's revenues fell 31% sequentially, while its net profit tanked 73.5% as state-wide lockdowns took a toll.

The company's MD and CEO said,

• Q1 FY 2021-22 saw a much stronger second wave of Covid-19 restrictions. We lost significantly more days or had higher restrictions on the number of hours of store operations compared to the same period last year.
  
  Despite lesser hours of operations, this time we had more customer footfalls than in the same period last year and this has translated into higher sales.

The main reason behind more customer footfalls was even though restrictions on operations were severe, personal mobility was less stringent this time.

Here's a table comparing the company's financials on key parameters.

Key financials

(Rs m)	Q1FY22	Q1FY21	Q4FY20	YoY (%)	QoQ (%)
Revenue	50,318	38,332	73,031	31.3%	-31.1%
Total Expenses	49,117	38,180	67,915	28.6%	-27.7%
Profit before tax	1,563	666	5,642	134.8%	-72.3%
Tax	412	170	1,293	142.1%	-68.2%
Profit after tax	1,151	496	4,350	132.3%	-73.5%

Data Source: Company Filings

The company's sales mix saw a shift in favour of food and grocery and FMCG whereas sales from general merchandise and apparels were lower.

This is a result of consumer preference of need based and essential goods shopping for a significant period during the year.

Gradual recovery in inventory

During the quarter, the company did not see any major supply related disruptions. The company said its inventory is also moving towards pre-covid levels.

The supermarket chain highlighted that a store needs at least 45 days of unhindered operations to get back to pre-covid sales momentum.

In the previous quarter, the company had highlighted excess inventory issue which could have a longer-term impact on its inventory to sales ratio.

While the company was able to control costs, the impact of second wave may hit the company's revenues in the coming quarter.

There remains a risk of moderation in company's growth owing to strong traction for online retailers in a post-Covid world.

Dmart ready expands footprint

'DMart Ready', which includes online sales and the pick-up counter business, continued to expand its footprint across the Mumbai metropolitan region (MMR), Ahmedabad, Pune, Bangalore, and Hyderabad.

Dmart ready sales increased 203% YoY and 39% sequentially to Rs 1.5 bn as covid led to faster than expected change in consumer behavior for online ordering.

During the quarter, the company added 4 new stores taking its total store count to 238 stores across several states.

In financial year 2021, Dmart's store additions was nearly half at 20 as compared to 38 in last fiscal. For the first time ever, Dmart had nil store additions in its core market of Maharashtra.

As per media reports, the company recently bought seven properties for Rs 3.7 bn of which three were in Mumbai.

How the markets reacted to Avenue Supermarts' results

Avenue Supermarts share price fell 1.5% in intraday trade today to hit a low of Rs 3,312 on the BSE.

The stock opened on a flat note on the BSE at Rs 3,375.

Last week, shares of the company touched new 52-week high of Rs 3,425 after reports suggested the company may be added in the NSE Nifty during the September review. Over the past year, shares of the company have gained 46%.

At its current price of Rs 3,339, Avenue Supermarts trades at a P/E ratio of 177.8.

About Avenue Supermarts

Avenue Supermarts is an India-based company which owns and operates DMart stores. DMart is a supermarket chain that offers customers a range of home and personal products under one roof.

Each DMart store stock home utility products including food, toiletries, beauty products, garments, kitchenware, bed and bath linen, home appliances and others.

The company offers its products under various categories, such as bed and bath, dairy and frozen, fruits and vegetables, crockery, toys and games, kid's apparel, ladies' garments, apparel for men, home and personal care, daily essentials, grocery and staples, and DMart private label brands.

DMart was started by Mr Radhakrishnan Damani. From the launch of its first store in Powai in 2002, DMart today has a well-established presence in 234 locations across Maharashtra, Gujarat, Andhra Pradesh, Madhya Pradesh, Karnataka, Telangana, Chhattisgarh, NCR, Tamil Nadu, Punjab, and Rajasthan.

To know more about the company, check out Avenue Supermarts company fact sheet and Avenue Supermarts quarterly results.

For a sector overview, read our retailing sector report.

You can also compare Avenue Supermarts with its peers on our website.

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