DMART - Result Analysis Q1 FY20-21
CMP: 2,237 (14:51 13-07-2020)
Total revenue from operations 3,833 Cr
5,815 Cr (-34.09%) YoY | 6,256 Cr (-38.71%) QoQ
Year ending revenue: 24,870 Cr Vs. 20,005 Cr (24.34%)
Net Profit of 40.08 Cr
323.06 Cr (-87.62%) YoY 271.28 Cr (-85.29%) QoQ
Year ending Net profit: 1,301 Cr Vs. 903 Cr (44.08%)
EPS (in Rs.) 0.61
5.11 YoY |4.21 QoQ
Year ending EPS: 20.55 Vs. 14.46
View: Result is below expectation. YoY revenue declined and profit significantly declined. Margin also corrected in this quarter.
Business Updates & Highlights:
Q4FY21 EBITDA was around INR 112 Cr Vs. 597 Cr in Q1FY21 therefore declined by 81.1% in YoY. EBITDA margin is around 2.9% Vs. 10.3% in YoY.
2 Stores were added in the Q1FY21.
Net Profit is at Rs. 40 crore for Q1 FY21, as compared to Rs. 323 crore in the corresponding quarter of last year. PAT margin stood at 1.0% in Q1 FY21 as compared to 5.5% in Q1 FY 20.
Financial
ROE and ROCE is around INR 18% and 26% respectively and book value per share is around INR 170 and share is currently trading at 13.7x of its book value. Company is currently trading at annualized PE of 186 which is very expensive as per Industry benchmark. Promoter holding is around 75% in the company which is strong and stable. FIIs and mutual fund hold around 9.6% and 5.7% in the company. The good thing is company is virtually debt free and realization is also very fair.
Management Commentary: Mr. Neville Noronha, CEO & Managing Director
- Covid-19 continued to spread across the country. The ensuing restrictions have had a significant impact on our operational and financial performance in the quarter. Our revenue, EBIDTA and PAT for the quarter were significantly lower as compared to the same quarter last year. At the end of Q1 of FY 2020-21, our review and analysis can be summed up into four key observations:
- Essential Retailer – Being in the essential products business helped us in providing shoppers their basic needs, pay our employees their wages and our suppliers and other service providers their dues just like before. In the current circumstances, this is extremely satisfying to each and every DMartian.
- Organized Retail (India versus Developed Countries) – Unlike developed countries where organized retailers had a surge of customers walking into their stores, it has not happened with the same intensity at our stores.
- This was because of the strong enforcement of store shutdowns, restrictive movement of people in general and strict social distancing rules inside stores. While the overall lockdown rules have softened in general, they continue with the same or more severe intensity in certain cities and local municipalities from time to time. Its negative impact on footfalls and sales were significant. There is also a sales channel of traditional trade which is smart, agile and resourceful. India still has a strong and resilient network of small shops and neighbourhood stores. They came roaring back after the first 2 or 3 weeks of lockdown serving the needs of an anxious customer the way the customer wanted it - quickly over the counter or through home deliveries. Value wasn’t top of mind for shoppers during this time.
- The DMart Business Model – After the passage of three months we can say with further certainty that our business model of store ownership, steady incremental store additions over time and strong focus on cost efficiency during usual times has allowed the business to face the pandemic shocks with relatively less harm. While we are in the midst of the second wave of the pandemic and business outlook may continue to seem uncertain, we are less anxious than we were in the beginning of April 2020.
- Online Sales – DMart Ready sales in Mumbai have grown very well. We are making all attempts to scale it up in a meaningful manner. We started Home Deliveries (using DMart Ready App) through our stores across the rest of the cities, but discontinued it once the stringent lockdowns were withdrawn and our stores were allowed to open for business.
- Conclusion – Wherever stores were allowed to operate unhindered, we recovered to 80% or more of pre-Covid sales in most stores. Discretionary consumption continues to be under pressure, especially in the Non-FMCG categories. This is impacting gross margins negatively. Store operations and duration of operation per day continues to remain inconsistent across cities due to strict lockdowns enforced by local authorities from time to time. In addition, in certain cities authorities are once again insisting on selling only essential products. Hence our future revenues continue to remain uncertain. We continue to cooperate with local authorities and are taking all necessary precautions and measures to keep our shoppers and employees safe and make shopping 100% safe
Position: Share support price is INR 2180. Long term investor should continue with the company. Short term share can correct due to result is declined.
Share View: Share price high 2,559 (52 week) and now 2,322. Avenue Supermarts Limited which owns and operates D-Mart stores. D-Mart is a national supermarket chain that offers customers a range of home and personal products under one roof. The Company offers a wide range of products with a focus on Foods, Non-Foods (FMCG) and General Merchandise & Apparel product categories. The Company offers its products under various categories, such as grocery and staples, dairy and frozen, fruits and vegetables, home and personal care, bed and bath, crockery, toys and games, kids apparel, apparel for men & women and daily essentials. As of June 30, 2020 the Company had 216 stores with Retail Business Area of 8.0 million sq. ft. across various states.
Opportunities: D-Mart follows Everyday low cost - Everyday low price (EDLC-EDLP) strategy which aims at procuring goods at competitive price, using operational and distribution efficiency and thereby delivering value for money to customers by selling at competitive prices. During this quarter company has still opened two stores despite the strict lockdown on April and part of May. Company recovered to 80% or more of pre-Covid sales in most stores. Strong operating cash flow and realization with strong visionary promoters and continuously adding by FPIs and mutual fund Dmart is still in favorite
Risk: Discretionary consumption continues to be under pressure, especially in the Non-FMCG categories. This is impacting gross margins negatively. Store operations and duration of operation per day continues to remain inconsistent across cities due to strict lockdowns enforced by local authorities from time to time. Like in Pune, Bangalore, Thane further shut down in the month of July, 2020 itself. In addition, in certain cities authorities are once again insisting on selling only essential products. Q2FY21 can also look like slight recovery as compare to Q1FY21. Unlike developed countries where organized retailers had a surge of customers walking into their stores, it has not happened with the same intensity at Dmart stores. India still has a strong and resilient network of small shops and neighbourhood stores and during the lockdown small shops did very well in terms of their customer needs.
Sources:
Various publications
Disclaimer: The information provided herein is based on publicly available information and other sources believed to be reliable, but involve uncertainties that could cause actual events to differ materially from those expressed or implied in such statements. The document is given for general and information purpose and is neither an investment advice nor an offer to sell nor a solicitation. While due care has been exercised while preparing this document, we do not warrant the completeness or accuracy of the information. We will not accept any liability arising from the use of this material. The recipient of this material should rely on their investigations and take their own professional advice.
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