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DMart’s Dec-Q performance was broadly on expected lines after having built in the growth disappointment laid out in the revenue update provided by the company earlier. Sales per store that accelerated somewhat during 2Q seems to be softened a tad again during 3Q – weaker-than-warranted festive offtakes have impacted non-essential sales and salience with consequential impact on margin as well, in our view. Interestingly, however, management commentaries point to a silver-lining on this front; as per the company, “Contribution from General Merchandise and Apparel has stabilised and trends are encouraging post Diwali”. Sustainability of the trend along with pace of store expansion are some of the key monitorables going ahead, in our view. We believe revenue traction for DMart would not remain so low forever, notwithstanding some small hits from competing grocery formats. We remain positive - businesses with such long growth runways are rare, in our view.

? Inline quarter; pace of store-additions remains challenging: DMart’s 3QFY24 revenue grew 17.2% to INR132.5bn (standalone). EBITDA and net profit growth were tad lower at 15% each to INR 11.2bn and INR 7.4bn respectively – broadly inline with our forecasts. Store counts rose 11.4% yoy to 341 with just five new stores added during the quarter; the company typically witnesses much higher additions in store-counts during 4Q. On a per-store basis, revenue grew 5.2% yoy – tad below c.6.5% seen in 2Q and was the key disappointment during the quarter for us. The same is likely attributable to lower-thanexpected festive season sales especially in the non-FMCG segment. Management also pointed out that there is steep inflation in agri-staples (except edible oils). The company had in the recent past alluded to recovery in General Merchandise while Apparels was still under pressure. Contributions from both these sub-segments seem to have now stabilised and “trends are encouraging post Diwali”, as per management. Subsidiaries’ revenue (mainly DMart Ready) grew 22.9% yoy but just 2.7% qoq) with a marginal loss at EBITDA level.

? Gross margins largely stable: Dmart’s 3QFY24 EBITDA performance was broadly inline with our expectations. Gross margin was down c.10bps yoy - a function of weaker mix owing to lower festive season offtakes, and possibly some price corrections undertaken on Apparels business as well in a bid to drive better offtakes therein. Sequentially, however, gross margin improved c.20bps qoq unlike last year when 3Q GPM fell c.20bps qoq. SG&A grew at a faster pace than topline (+18.6% vs +17.2%); on a per-store basis, SG&A grew 6.5% vs 5.2% growth in revenue leading to a 15bps yoy decline in EBITDA margin to 8.5%.

? MD and CEO Neville Noronha’s comments on the quarter’s performance: “We ended Q3 FY 2024 with a revenue growth of 17.2% as compared to the corresponding quarter of last year. Contribution from General Merchandise and Apparel has stabilised and trends are encouraging post Diwali. This time the festive season sales were lower than expected in Non-FMCG. Within FMCG, agri-staples (ex-edible oil) are going through significantly high inflation. We opened 5 new stores during the quarter. Our total stores now stand at 341.

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CIN Number : L67120MH1986PLC038784