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Electronics Mart (EMIL) had a steady quarter largely on anticipated lines despite a truncated summer earlier and shift of festive season largely in Q3FY24. Sales were expected to remain weak (+7% YoY) mainly on account of shift in festive season to Q3 and amidst weak demand – still better than expectations. Strong performance on margins for yet another quarter despite opening new stores further supported from sale of extended warranties helped improve gross margins. Even after absence of festival period in Q2FY24, EMIL managed to achieve 8.4% store sales growth in H1FY24 and 2% in Q2FY24. It is expected to do well in Q3FY24 filled with festivities and build up to that has been positive. PAT in Q2FY24 was up 55% YoY. 15 new stores were added in H1 FY24 and expect to open another 14 new stores in H2FY24. Management highlighted that the scope to expand around the Delhi/ NCR remains quite large with adjoining areas providing ample opportunities. Strong performance seen on the operating cashflow which stood at ?2.8bn in H1FY24 vs. outflow of ?6mn for FY23.

Overall, the company endeavour remains to ramp up its store performance with various initiatives. EMIL with its approach provides strong growth visibility ahead with stable margins and return ratios. EMIL’s cluster-focused expansion strategy will help the company to build depth and scale in its targeted geographies. EMIL’s plan to build its presence in the NCR region will provide diversification benefits from its current concentrated presence in South-India and with better productivity ahead as store normalises would improve margins in Delhi/NCR region. Considering the H1FY24 performance and expectation of better H2FY24 loaded with festivities we remain positive ahead and tweaked estimates accordingly. We maintain Buy on the stock with revised PT of ?195.

Q2FY23 Result Summary

Revenues of ?13.1bn, +7% YoY. Revenue contribution from large appliance/ Mobiles/ small appliances, IT and others stood at 37%/48%/15%. Gross Margins at 14.9%, +125bps YoY/ +35bps QoQ basis.. EBIDTA came at ?966mn, +28% YoY. EBIDTAM stood at 7.4%, +122bps YoY largely contributed due to sales of higher margins ACs futher supported from sale of extended warranties and lower ad spends. PAT came at ?374mn, +55% YoY. On balance sheet front Inventories / Trade Receivables / Trade Payables stood at ?7.4bn / ?1.4bn / ?379mn at the end of H1FY24 vs. ?7.7bn / ?1.4bn / ?246mn at the end of FY23.

Cash & Cash Equivalents decreased from ?2.0bn in FY23 to ?517mn in H1FY24 mainly due to debt repayment. Operating Cashflow stood at ?2.8bn in H1FY24 vs. outflow of ?6mn for FY23. Capex for H1FY24 stood at ?601mn vs. ?2.4bn for FY23. Total borrowing reduced from ?7.3bn in FY23 to ?3.6bn in 1HFY24.

Outlook and Valuation

The company has clear focus on premium products and strong product depth with only top brands in various categories, 2) focuses on retailing top brands rather than adding private labels to avoid discounting and inventory issues, 3) simple and flat floor and corporate reporting structure, which enables cost controls, quick decision making and higher employee incentives, 4) clear dominance in two states with strong growth potential in the third, which is a much larger market, 5) enjoys superior store metrics than peers, led by higher realisations, higher bill sizes and superior product mix which drive higher store throughputs, 6) robust relationships with top brands in all electronics categories. Considering the H1FY24 performance and expectation of better H2FY24 loaded with festivities we remain positive ahead and tweaked estimates accordingly. We maintain Buy on the stock with revised PT of ?195.

Key Risks:

1) Intensified aggression by larger players like Croma, Reliance and Vijay Sales, 2) muted demand conditions driving down trading or higher discounting, and 3) brand acceptance issues in the new Delhi/NCR market.

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SEBI Registration number is INM000002483