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D-Mart 3QFY24 pre-quarter update

Revenue grows 17% YoY (5% miss)

Soft revenue growth with moderate productivity and footprint adds

? Standalone revenue for 3QFY24 grew 17% YoY to INR132.5b (5% below estimate), driven by 5% growth in revenue per store to INR1,565m (annualized) and 11% store addition. On a sequential basis, revenue grew 8%, led by 5% growth in revenue per store and merely 1% store addition.

? Revenue per sq. ft. rose 4% YoY to INR37,782.

Recovery off-track:

? Revenue per sq. ft. saw a moderate growth of 4% YoY. In the last three years, it remained subdued due to the addition of larger stores and weak discretionary spending. While this trend has been gradual reversing for the last 2-3 quarters, which is evident in the reducing gap between the revenue per store growth and revenue per sq. ft. growth in the last 3 quarters (Revenue per sq. ft. improved from INR31,807 in 4QFY23 to INR35,869 in 2QFY24). However, in 3QFY24, the trend was impacted, with revenue per sq. ft. growth at 4% being lower than revenue per store growth at 5%.

? While the shift in the festive season was expected to benefit, the industry-wide commentary has indicated a persistent slowdown in the discretionary category in 3QFY24, which may be still hurting the nonfood category (25-30% of revenue). However, softening RM prices should drive demand in the coming quarters.

What went wrong? Has quick commerce gained share?

? Our monthly price monitor for organized grocery retailers, both offline and online, highlights that offline, particularly DMART, remains >10% cheaper on the overall basket, indicating a clear edge for value customers. Online grocery players, on the other hand, have reached the revenue mark of INR350-400b in the last 2-3 years (equivalent to the size of DMART). But we feel they could have gained share predominantly from the unorganized market.

? Apart from weak discretionary demand, larger stores may have seen a slower-than-expected scale-up, and the space provided from the discretionary category is not garnering healthy productivity.

Weak store additions:

? The company added merely 5 stores in 3QFY24 (vs. 9 stores in 2QFY23), taking the total count to 341 stores. Store adds in 9MFY24 stood at 17 stores.

? Our FY24 estimate stands at 40 store addition, with the majority of the store adds being back-ended. However, this appears to be a bit tall task, with 23 store adds in 4QFY24.

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