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JM Financial
Avenue Supermarts (Hold)
Target: ₹2,135
CMP: ₹2095.75
Avenue Supermarts (DMart’s) September Quarter operating performance was a negative surprise to us, especially since total revenue had already recovered to 80 per cent of base level by the month of June; to that extent, a 11-12 per cent y-o-y decline for full September Quarter was much steeper than what we envisaged.
The management, however, cited month-on-month improvement with August better than July, September better than August. However, even the more mature stores (greater than 2 years) were still at just about 87.5 per cent of base year’s revenue in the month of September.
As we had feared while downgrading the stock in mid-April, post-pandemic social distancing norms are likely taking a toll on crowd at stores, which was one key factor that drove the high throughputs one saw for DMart. The second factor here is a way slower pace of recovery in General Merchandise & Apparels (27.3 per cent of FY20 revenue) that earned much higher gross margin, as per our workings. The latter impacted not only revenue but also profitability, driving GPM lower by 86 bps y-o-y (consolidated GPM tells a better picture since standalone margin includes impact of goods ‘transferred’ to DMart Ready at likely lower mark-up).
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