Avenue Supermarts Limited is an emerging national supermarket chain, with a strong focus on value-retailing. DMart has opened its first store in Mumbai, Maharashtra in 2002. As of 31st March, 2019, it had 176 stores with retail business area of 5.9 million sq. ft., located in Maharashtra (70 stores), Gujarat (34), Karnataka (16), Telangana (21), Andhra Pradesh (11), Madhya Pradesh (6), Chhattisgarh (3), NCR (1), Daman (1), Tamil Nadu (4) Rajasthan (5) and Punjab (4).
DMart continue to focus on its core strategy of offering value retailing to the customers using the Everyday Low Cost/ Everyday Low Price (EDLC/ EDLP) principle.
Industry leading revenue/ sq. ft.
DMart has industry best revenue from sales per retail business area sq. ft., which has been on an increasing trend from Rs. 26,388 per sq. ft. in FY15 to Rs. 35,647 per sq. ft. in FY19.
Huge under-penetration in organized Food and Grocery (F&G) market.
Of the overall retail industry, food and grocery accounts for the largest share in revenue in India. The Indian retail market is still in its nascent stage. The organized retail constitutes about 9 percent of the total retail sector and the unorganized retail market represents the remaining 91 percent of the sector. The same is the case with the food retail market where the organized market constitutes only 3 percent in comparison to the unorganized segment that forms 97 percent of the food retailing market. The organized retail market in India is growing at a CAGR of 20-25 percent per year, which is a strong indicator of its growth potential in the years to come.
Strong same store sales growth (SSSG)
DMart’s growth in revenue from sales of same stores which have been operational for at least 24 months at the end of a fiscal, has improved from 14.2% in FY18 to 17.8% in FY19. During FY12-17, D-mart has sustained consistent SSSG of above 20%.
Robust store expansion on the cards
DMart follows a cluster-based expansion approach where it focuses on deepening penetration in the areas where it is already present, before expanding to newer regions. Using this strategy, the company added 21 stores in FY 2018-19. From 57 stores in FY13, the company has expanded it to 176 stores in FY19.
In the past, DMart followed the ownership model as savings in rental cost was passed on to customers in the form of lower prices. Going forward, we expect store expansion to improve as the company is now willing to consider long term lease.
DMart Ready – online initiative
DMart retails online through ‘’DMart Ready’’ which allows its customers to order a broad range of grocery and household products through its mobile app as well as website. ‘DMart Ready’ is on experimentation mode and currently operates in select areas of Mumbai region.
True to its principle of Everyday Low Cost / Everyday Low Price
DMart is able to offer the highest discount on a consistent basis as compared to its competitors. Currently DMart owns most of its stores, which helps to get away from periodic rental escalation and also in keeping low fixed costs. DMart passes on the benefits of rental savings to customers in terms of lower prices.
India is a burgeoning market which is driven by large-scale domestic consumption. The retail segment is witnessing a significant shift and is growing rapidly to reach a market size of $960 billion by FY 2020. Primary drivers of this growth will be rising income levels, lifestyle changes adopted by an increasingly affluent middle class and increased digitalization and technology adoption.
The country is witnessing some large-scale investments in E-commerce market. E-commerce would form 4%-6% of the total retail market, whereas organized retail would constitute 12% at the end of FY 2019-20. The rest is attributed to traditional retail, which will witness gradual adoption of organized retail practices, driven by measures such as GST.
|Particulars||31.3.2017||31.3.2018||31.3.2019||31.3.2020 E||31.3.2021 E|
|Inc/Dec in Stock||-276.22||-211.31||-444.65|
|Puchase of stock in trade||10357.25||12846.95||17445.49|
|Cost of material consumed||432.31||494.98||652.52|
|Profit Before Tax||760.01||1203.59||1421.94||1701.98||2171.74|
|Tax Rate %||35.30||34.55||36.53||25.00||25.00|
Despite competition from online and offline players, DMart is still the lowest cost retailer. DMart is best placed to benefit from growth in the retail sector through transition from unorganized to organized. DMart will benefit from the government’s move to cut corporate tax rate to 25% (including surcharge) as DMart’s average tax rate over last the 3 years is 35%. The tax saved and expected QIP (Qualified Institutional Placement – the company plans to raise funds by offering its equity to institutional investors) before March 2020 should in turn help company to add store at much faster rate as compared to past.
We estimate DMart should deliver Revenue/ EBITDA/ PAT CAGR of 29%/ 25%/ 34% respectively over FY19-21 driven by new store additions, steady SSSG and lower tax rate. We initiate ‘buy’ with a target price of Rs. 2,200 valuing the company at 54x FY21E EV/EBITDA and 84x FY21E EPS.