IGI Logo

The stock could take a breather on the back of the Sep-Q report that was relatively lacklustre. Normalised growth in sales per-store (3-year CAGR) improved a tad to 3% vs 2% seen in recent few quarters. As per management, the number of new stores added (new stores have much lower sales vs older ones) and profile of the cities for newly-opened stores could be a few reasons why blended average isn’t as strong as what one used to see during earlier periods. Also, the profitability profile hasn’t had the same uplift this time round as was seen during Jun-Q - this led to a 9% miss as far as our estimates go. Disappointing Sep-Q result notwithstanding, we still view DMart as one of the best earnings-compounders in the space – we believe the business’ long growth runway can help the stock deliver double-digit return over coming five years even if current PER of >100x NTM EPS drops to 55x, which is quite an ‘acceptable’ consumer multiple now, during that period.

* Per-store sales growth still somewhat muted at blended level; post-pandemic behaviour seems to be playing a role here: DMart’s revenue grew 36% to INR 103.8bn (standalone). On a per-store basis, revenue grew 10% yoy but CAGR over a 3-year period is still just about c.3% - tad better vs c.2% seen over the last three quarters. Store count grew 23% yoy to 302 (12.4mn sq ft). While basket-size in H1 (INR1,870/-) increased further vs FY22 level and >50% above pre-pandemic level, footfalls are still weak - this combination works fine from FMCG shopping’s productivity and profitability perspectives but has negative connotations on the sale of higher-margin ‘General Merchandise and Apparels’ category. Also, inflationary stress is more acute on discretionary categories, especially the lower price-point ones. General Merchandise and Apparels had a sub-25% contribution in H1 (vs >28% in FY19) – loss of these sales is also a factor that is restricting store-level growth. As per management, the cohort of stores that are 5 years or older grew 6.5% LTL (annualised). Within this, older stores that already do a much higher sales per sq ft vs company average and where a new DMart has opened close by (to take care of higher demand in the area) are seeing lower LTL growth vs others. As far as sales per store growth on company-level is concerned, management cited that the number of new stores added per year (new stores have significantly lower throughput vs older ones) and population-profile of the city for newly opened stores could be a few reasons why the enterprise-level growth isn’t as high as what one used to see during earlier times.

* Costs and profitability metrics disappointed this time round: DMart’s 2QFY23 EBITDA grew 33.5% to INR8.95bn but was way lower than what we expected on account of lower-than-expected GPM and higher growth in ‘Other Expenses’ at a per-store level. After clocking a near-all-time-high GPM of 15.8% during Jun-Q, GPM was just 14.5% during Sep-Q (we expected 15%). Sales-mix is typically weaker in Sep vs Jun (due to higher purchases relating to back-to-school, shifting-of-homes during Jun-Q) but pace of GPM expansion on yoy comparison was also way more muted than expected, given how discretionary categories (with typically higher GPM) have been recovering progressively, though still below pre-pandemic levels. This, along with a yoy growth of c.23% in ‘Other Expenses’ per store (vs c.10% growth in per-store sales), led to a weaker-than-expected EBITDA margin of 8.6% (we expected 9.5%). Stripping out tax refund of INR 1.4bn, adjusted net profit grew 31% yoy to INR 5.9bn and was 10% below our expectation.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://www.jmfl.com/disclaimer

CIN Number : L67120MH1986PLC038784

Above views are of the author and not of the website kindly read disclaimer