Avenue supermarts share (DMart) Profits jumped six-folds YoY in Q1FY23

DMart is a one-stop grocery chain that seeks to provide clients with a large selection of essential personal and home goods under one roof. Mr. Radhakishan Damani and his family founded DMart to meet the expanding demands of the Indian family. Since opening its initial location in Powai in 2002, DMart has expanded to occupy 294 stores across the states of Maharashtra, Gujarat, Andhra Pradesh, Madhya Pradesh, Karnataka, Telangana, Chhattisgarh, NCR, Tamil Nadu, Punjab, and Rajasthan.

Avenue Supermarts Ltd. is the owner and operator of the DMart brand supermarket chain, headquartered in Mumbai. Their business expansion includes more locations planned in more cities, as they want to be the least expensive retailer in the areas where they do business. Avenue Supermarts Ltd is the brand owner of the names D Mart, D Mart Minimax, D Mart Premia, D Homes, Dutch Harbor, etc.

On July 9th , Avenue Supermarts announced its Q1FY23 results. Prior to the results, the company posted an update on the upcoming Q1FY23 results on July 2nd. After disclosing in the update that they have reported a multiple-fold increase in their profits and revenue for the Q1FY23, the price of the DMart stock increased by about 11% in just four trading sessions, thereby highlighting positive investor sentiment over the DMart stock. Now, let’s decipher the reason for the same.

Avenue supermarts revenue almost doubled YoY in Q1FY23

On July 2, Avenue Supermarts, announced a consolidated revenue of Rs 10,038 crore for the Q1FY23, which is over twice as much as the revenue of Rs 5,183 crores in Q1FY22. Overall sales have recovered extremely well in Q1FY23, but due to the Covid-19 second wave last year, this quarter’s performance cannot be compared to the same period last year, according to Neville Noronha, CEO & Managing Director of Avenue Supermarts.

In Q1FY23, the company’s EBITDA (Earnings before Interest, Tax, Depreciation, and Amortization) surged by almost four times to Rs 1,008 crore from Rs 221 crore in Q1FY22. As a result, DMart’s EBITDA margin rose from 4.4% to 10.3% YoY. “Our discretionary contribution mix of this quarter is yet to reach the pre-pandemic levels but is getting better. High inflation over the last two years hides the possible stress in volume growth for discretionary categories of mass consumption,” MD & CEO of Avenue Supermarts added.

Avenue supermarts Profits jumped six-fold YoY in Q1FY23

 In Q1FY23, Avenue Supermarts reported a consolidated net profit of Rs 643 crore, an increase of 490.3% or 5.90 times over the Q1FY22, when profits were Rs 95 crores. PAT margin increased from 2.3% in Q1FY22 to 6.9% in Q1FY23. From the Q4FY22 PAT of Rs 679.64 crore, Q1FY23 PAT increased by more than 45.7% sequentially.

This is the first full quarter of zero disruption from the Covid-19 pandemic, Noronha said, adding that “Q1 like Q3 is a good revenue as well as profit-enhancing period due to back to school/college season and the onset of the monsoons”

Avenue supermarts (DMart) added 110 stores in Last 3 financial years

Over the past three fiscal years, DMart has collectively launched 110 outlets that, because to COVID-19, haven’t had the chance to function normally over the previous two years. Additionally, these stores are bigger, better built, and able to accommodate a wider range of products. Therefore, once they begin operating at their true potential, both revenue and earnings will experience a significant increase. They currently have 294 stores as of Q1FY23, and they’ve added 60 stores in the previous 12 months.

Motilal Oswal Financial Services analysts contend that although overall growth appears to be robust, anticipated LTL (like to like) revenue decreased 13% in the first quarter of FY23. Additionally, the soft shop performance improved as a result of greater online platform revenue contributions from metros and tier-1 locations. “DMart added 10 stores in Q1FY23, taking its total store count to 294. In the last three years, it has added 60 per cent stores and 95 per cent area, despite the COVID led lockdowns. This is higher than our expectation of four store additions in Q1FY23 and its typical heavy store additions in the second half of the fiscal, “the brokerage firm said.

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Technical Analysis: D-Mart share gained 11% in 4 Trading sessions

 In June, the stock experienced a 15% correction, compared to the S&P BSE Sensex’s 4.6% decrease. The 50 EMA is below 100 & 200 EMA, so long-term investors can consider investing in the DMart stock, given the recent fall in commodity and crude palm oil prices, which is a big positive for FMCG firms as it is an essential raw material for them. Moreover, DMart Share price gained 11% in recent trading sessions after the release of an update on the quarterly results of FY23.

Our view

As the Avenue supermarts is optimistic about the fast moving consumer goods industry, but increased inflationary trends and shift to e-commerce can act as strong headwinds and will make it difficult to understand the discretionary non-FMCG market.

FMCG companies listed on the NSE saw a significant fall early in the year, and throughout the quarter, India’s FMCG industry remained underperforming. It was severely hurt by growing inflation rates, driven on by geopolitical worries, which had an influence on volumes and led to price increases. However, the past few months have seen a cooling of raw material prices and FMCG stocks are bouncing back from their recent lows. FMCG forms a fair percentage of Dmart’s products, and the rise in FMCG stocks will have a direct benefit tothe stock of Dmart.

While the recent decreases in commodity prices and the anticipated robust monsoon are additional encouraging news. The price of crude palm oil futures on international exchanges has dropped by more than 35% in recent weeks due to the restart of Indonesian exports as well as concerns over the health of global demand. Since crude palm oil is an essential raw material, the sharp price decline is advantageous for domestic producers of high-demand consumer goods. With the expansion of stores, the pick up in FMCG stocks and strong Q1FY23 numbers, the stocks have the potential to move to levels of 4500 in the near term.

 

Note – This channel is for educational and training purpose only & any stock mentioned here should not be taken as a tip/recommendation/advice

Research done by: Ketan Sonalkar, SEBI Rgn No INA000011255

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