DMart posts sharpest rise in 5 quarters, margins trump D-Street estimates

Avenue Supermarts, which runs the DMart chain of stores in India, reported its sharpest rise in operating and net profit margins in five quarters, at the end of the June quarter (Q1FY20), beating Street estimates. 

Earnings before interest, tax, depreciation and amortisation (Ebitda) margins came in at 10.3 per cent, on the back of better operational efficiency despite growing concerns over pricing pressure and competitive intensity. 

A year ago, DMart had reported Ebitda margins of 9.3 per cent, which declined subsequently to hover between 7.5 per cent and 8.3 per cent in the last three quarters. Analysts had maintained this range for the June quarter as well.

Even though Managing Director and Chief Executive Neville Noronha struck a cautious note, saying Q1 margins were not a reflection of the full year, analysts nevertheless said it was a positive surprise, given the retailer has been fighting online and offline players with the lowest price in the food and grocery segment.

“On an aggregate basis, a typical consumer basket at DMart comes at a 10 per cent discount to the most expensive seller,” Edelweiss said in a recent report. 

“Further, among the 27 items (surveyed), we found that offline businesses like DMart sell products at cheaper rates compared to online platforms such as Big Basket and Amazon Pantry. Nearly 52 per cent of the 27 items are cheapest at DMart, followed by 15 per cent at Reliance Smart,” the brokerage added.  

Net profit margin in Q1 stood at 5.8 per cent, higher than the 5.5 per cent reported a year ago and ahead of the 4.0-4.8 per cent range seen in the last three quarters.

Ebitda and net profit, too, were ahead of Street estimates at Rs 596 crore and Rs 335 crore in Q1, a year-on-year growth of 41 per cent and 33.8 per cent, respectively. A consensus estimate of analysts polled by Bloomberg had pegged Ebitda at Rs 493 crore and net profit at nearly Rs 280 crore, respectively, for the period under review.

Revenue for the quarter was in line with Street estimates at Rs 5,781 crore, a growth of nearly 27 per cent from a year earlier.

DMart did not feel the pinch of the Ind-AS lease accounting norms that kicked in from April 1 this year, given most of its stores are owned and operated by it. For Q1, profit before tax declined by Rs 3.61 crore only, touching Rs 516.15 crore, as the company had to adjust for the impact on its profit and loss statement. 

While the company did not specify same-store sales growth (SSG) for Q1, analysts said that it was between 15 and 18 per cent for the period under review. SSG is the comparable sales growth of stores one year and above.

DMart also added eight stores in Q1, a large part of which was a spill-over from the previous quarter.