Analyzing Avenue Supermarts is a challenge due to the limited amount of information available in the public domain. The only solace one gets is from the annual report where we get a glimpse of the working of the company. The company has released its annual report few months back. Let us have a look at its performance for FY18.

New Store Additions

The company added 24 new stores in FY18. This was by far the fastest addition of stores by the company. The table below shows the store count and the pace of store addition, over the past few years. You will notice that, with every passing year, the company has seen an increase in the store count growth rate.

FY18 FY17 FY16 FY15 FY14 FY13 FY12
Stores Added 24 21 21 14 13 7 19
Total Store Count 155 131 110 89 75 62 55

If I were to add parallels to Walmart, the below table captures the details on store additions over the past five decades for Walmart.

Walmart 2010s 2000s 1990s 1980s 1970s
Average annual store additions for the decade 54 103 118 113 28
Rough Store count during the decades 4000 to 4500s 3000 to 4000s 1500 to 3000s 500 to 1500s 100 to 500s

                                                  Data from Goldman Sachs Report

From the above table, we can observe the following:

  • Store growth during the initial years was low which increased progressively and peaked in the 1990s. Walmart was founded in 1962. So, the store growth peaked closed to 35 years into its operations. This indicates that the peak store addition happens way down the line of existence of a discount retail store.
  • Post the peak store growth in the 90s, the addition of new stores did not drop down suddenly to a lower value. It has been a rather gradual decline in the subsequent decades. Clearly, when a retail chain reaches a level of maturity, it gradually declines to a lower growth rate.
  • Dmart: In case of Dmart, when the Q3 FY18 results were announced, company MD, Neville, noted the following: “… Speed of opening new stores has to improve. There is an opportunity to do better there”. And when Q4 FY18 results were announced, he said the following to say: “Deflation in staples, tax rates not being comparable, store addition not in line with expectation…” Clearly, the management expects a higher store growth rate.

State-Wise store breakdown

The table below provides a state wise breakdown of the number of stores over the past few years. The following are the observations with respect to the state wise breakdown:

  • FY18 store growth was skewed towards two states, Telangana and Andhra Pradesh. Out of the twenty four stores that were opened in FY18, nine was opened in Telangana and Andhra Pradesh.
  • In FY18, Dmart entered Punjab with three new stores.
  FY18 FY17 FY16 FY15 FY14 FY13 FY12
Maharashtra 62 60 58 50 46 40 34
Gujarat 30 29 26 22 17 14 14
Telangana + Andhra Pradesh 29 20 16 10 7 5 4
Karnataka 12 11 6 5 5 3 3
Madhya Pradesh 6 3
Rajasthan 5 3
Tamil Nadu 3 1
Punjab 3 0
Chhattisgarh 3 2
NCR 1 1
Daman 1 1

Retail business area

The amount of retail space increases in proportion to the store count. The table below captures the increase in the store area for the past seven years. Interesting points to note:

  • The company has seen retail business area growth of at least 20% every year.
  • The growth rate in percentage terms peaked in FY16 and has been declining over the past couple of years.
  • In absolute number terms, the business area has been growing every single year.
  FY18 (in Million Square feet) FY17 (in Million Sq Ft) FY16 (in Million Sq Ft) FY15 (in Million Sq Ft) FY14 (in Million Sq Ft) FY13 (in Million Sq Ft) FY12 (in Million Sq Ft)
Total Retail business area 4.9 4.06 3.33 2.66 2.14 1.76 1.55
New Area Added during the FY 0.84 0.73 0.67 0.52 0.38 0.21
Increase in Retail business Area (%) 20.68% 21.92% 25.18% 24.29% 21.59% 13.54%

Revenue per square feet of business Area

Increasing business area is a healthy sign, but if the business per square feet is not commensurate to the increase in the business area, then efficiency of a company decreases. It would mean that the company is growing its footprint, but it is not efficiently utilizing its stores. Let see the revenue per square feet for Dmart. The company has managed to increase its revenue per square feet every single year over the past seven years. The pace of growth in revenue per square feet has been declining over the past couple of years. But then this is expected as there is a limit to how much juice you can extract from mature stores. If the revenue per square foot has to increase then either the footfalls need to increase or the customers have to loosen up their purse. I feel both these are tough to achieve for the following reasons:

  • Dmart stores are already jam packed, increasing footfalls would mean stuffing people into already overfull stores.
  • The cross section of people who visit Dmart consists of lower class, lower-middle class and upper-middle class. They are of finite means and cannot shop beyond a point.

From here on, I believe the company may find it a challenge to increase revenue per sq. ft.

  FY18 (in RS.) FY17 (in Rs.) FY16 (in Rs.) FY15 (in Rs.) FY14 (in Rs.) FY13 (in Rs.) FY12 (in Rs.)
Revenue from sales per Sq. ft. of the mart space 32,719 31,120 28,136 26,388 23,419 20,116 15,324
Growth in revenue per sq. ft. (%) 5.13% 10.6% 6.62% 12.67% 16.41% 31.27%

We can use the “growth in revenue per store” numbers for Walmart as a comparison. The table below shows the details. In case of Walmart this metric peaked in the 70s.

Walmart 2010s 2000s 1990s 1980s 1970s
Average revenue growth per store for the decade 1% 5% 11% 13% 15%

Inventory Turnover Ratio

Inventory turnover ratio indicates the number of times the company (potentially) emptied its entire stock in a given year. Hence, a value of 14.4 implies that the company was able to empty its store 14.4 times in FY18. Correspondingly the number of days for which the products were available on the shelf before they were emptied, turns out to be 25.3 days.

  FY18 FY17 FY16 FY15 FY14 FY13
Inventory turnover ratio 14.4 14.9 14.4 14.4 15 15
Inventory on Hand (in days) 25.d days 24.5 days 25.3 days 25.3 days 24.3 days 24.3 days

Bill Cuts

Bill cuts provide information on the number of bills that were printed during a particular year, which in-turn is an indication of the number of customer buying items from Dmart. From the table it is clear that every single year the number of bill cuts have increased. One should also keep in mind that every year the company has been increasing its store footprint as well. Hence the increase in bull cuts could be attributed to both the existing stores as well as the new stores.

  FY18 (in crores) FY17 (in crores) FY16 (in crores) FY15 (in crores) FY14 (in crores) FY13 (in crores)
Bill Cuts (Number of bills) 13.4 10.85 8.47 6.72 5.34 4.31

P&L Analysis

The table below captures the P&L numbers for Dmart for the past six years. The numbers are a treat to watch. Revenue has grown at an average of 35%, except for FY18 wherein revenue grew by 26%. EBITDA has grown at a minimum rate of 35%. EBITDA margins have grown every year as well. PAT has grown at an exceptional rate. Even the PAT margins have been growing every year over the past six years.

FY18 FY17 FY16 FY15 FY14 FY13
Revenue (Crores) 15009 11881 8,575 6,419 4,670 3,327
Revenue Growth (%) 26.32% 38.55% 33.58% 37.45% 40.36%
EBITDA (Crores) 1337 964 657 454 336 227
EBITDA Growth (%) 38.69% 46.72% 44.71% 35.11% 48.01%
EBITDA Margin (%) 8.9% 8.1% 7.66% 7.07% 7.19% 6.82%
PAT (Crores) 785 483 318 211 160 93
PAT Growth (%) 62.52% 52.88% 50.71% 31.87% 72.04%
PAT Margin (%) 5.23% 4.06% 3.70% 3.28% 3.42% 2.79%

The P&L numbers are incomplete without the expenses. The table below captures the major expenses over the past three years.

FY18 FY17 FY16
Purchase of stock in trade (Crores) 12862.76 10368.95 7444.17
Employee Expense (Crores) 276.55 189.47 146.21
Finance Cost (Crores) 59.41 121.80 91.23
Depreciation and Amortization (Crores) 154.65 126.02 97.09
Other Expense (Crores) 746.13 632.00 458.43
  • Purchase of Stock in Trade: As a retailer, Dmart’s major expense would be the money spent in buying the products from manufacturers and distributors. The table above captures this expense. An interesting number is the cost of these products as a percentage of total sales. The table below captures this information. As expected, it eats up into the revenue which gets reflected in the EBITDA margins.
FY18 FY17 FY16
Cost of products as a % of revenue 85.70% 87.27% 86.81%
  • Employee Expense: Employee expense is a relatively minor contributor to the overall expense for the company. There are a couple of reasons for this. Retailing is not a business that needs technical expertise. Hence the average salary for employees would be less. The other reason being that all the store employees are from a third party agency. Hence their salaries are accounted as part of “other expense”. Let us look at the impact of employee expense on the overall revenue of the company. This is captured in the table below.
FY18 FY17 FY16
Employee expense as a % of revenue 1.84% 1.59% 1.70%
  • Depreciation and Amortization: Dmart is one of those exceptions in India that believes in owning most of its stores. These stores, factories and machineries are subjected to depreciation. With increasing store count every year, we should expect the depreciation numbers to increase as well.
  • Other Expense: In case of Dmart, “Other Expense” is a very loaded item. It encompasses many items. Before we touch upon a few of the important sub-items in this section, let us first look at the growth in other expenses as a percentage of revenue. The table below captures this. Clearly the company does not see ‘other expense’ being a major drain on its revenue.
FY18 FY17 FY16
Other expense as a % of revenue 4.97% 5.31% 5.34%

Among all the items that constitute “Other expense”, there are two items that are of interest, i.e., (a) Contract labor charges (b) Rent

Contract labor charges: In case of Dmart, most of its store employees are contract labors. Hence their salaries are captured under this line item. The below table captures the contract labor charge. As the store count has increased over the years, contract labor charges have correspondingly increased.

FY18 (Crores) FY17 (Crores) FY16 (Crores)
Contract labor charges 316.06 288.70 205.11

Rent: Dmart owns 80% of its stores and the rest 20% are on lease. Therefore the company ends up paying rent for these leased stores. The amount of rent paid for these stored has been captured in the table below. From the numbers the rent amount seems to be miniscule!

FY18 (Crores) FY17 (Crores) FY16 (Crores)
Rent 47.58 34.21 18.91

Balance Sheet

The balance sheet for FY18 and FY17 has been captured below. I have extracted a few items from the balance sheet that are relevant for the current discussion. Some salient points from the balance sheet:

  • The major liability for the company is the shareholder funds. It may be a liability for the company, but for shareholders it is a source of cheer as it represents the net worth of the company.
  • Long term borrowings have gone down drastically in FY18. This is primarily due to the use of the IPO proceeds to repay the loans.
  • Short term borrowings have been brought down to miniscule levels. Again, this should be due to repayment of loans from the IPO money.
  • Trade payables have increased in FY18. This indicates that the company owes its suppliers. Note that trade payables is a snapshot of a particular day and is subject to dynamic changes. Inventories have increased as well, which indicates that the company is stocking more on its shelves.

Overall, it appears to be a very healthy balance sheet.

  FY18 (Crores) FY17 (Crores)
Liabilities
Shareholder funds (Share Capital + reserves + Surplus) 4642.71 3841.78
Long Term Borrowings 246.00 980.92
Short Term Borrowings 7.25 138.84
Trade Payables 315.87 260.66
Other Current Liabilities (including financial liabilities like term loans and NCDs maturing in the current FY) 330.44 527.39
Assets
Tangible assets (Marts, machinery, Fitouts) 3233.65 2543.93
Capital work in progress (to build tangible assets) 147.05 152.89
Inventories 1147.03 947.90

The balance sheet for the past few years is listed below. From the balance sheet, it is evident that the increase in borrowings and the desire to grow were the reasons for the IPO of the company.

  FY17 (Crores) FY16 (Crores) FY15 (Crores) FY14 (Crores) FY13 (Crores) FY12 (Crores)
Liabilities
Shareholder funds (Share Capital + reserves + Surplus) 3841.78 1520.42 1199.22 955.58 789.54 681.69
Long Term Borrowings 980.92 908.46 713.77 456.83 371.16 264.32
Short Term Borrowings 138.84 129.69 43.68 54.65 62.36 63.33
Trade Payables 260.66 191.8 118.5 122.58 94.38 64.36
Other Current Liabilities (including financial liabilities like term loans and NCDs maturing in the current FY) 527.39 276.99 215.03 170.13 134.60 89.77
Assets
Tangible assets (Marts, machinery, Fitouts) 2543.93 2089.17 1524.08 1168.06 921.58 777.29
Capital work in progress (to build tangible assets) 152.89 81.68 98.11 88.78 118.10 84.93
Long Term Loans and advances ~ 88 107.36 80.16 42.58 52.62 35.52
Inventories 947.90 671.86 539.60 378.32 276.22 195.73
Current Assets (Bank Balances) 1884.27 35.09 38.84 55.41 61.61 47.91

Cash Flow

The table below captures the cash flow for the company for FY18 and FY17. I have captured few items from the cash flow statement that are relevant for the discussion.

FY18 (Crores) FY17 (Crores)
Cash flow from Operating Activities:
Net Profit Before tax 1195 760
Depreciation and Amortization 154.65 127.81
Tax Paid 396.46 258.61
Net Cash Generated from Operating Activities (A) 722.98 457.84
Cash flow from Investing Activities
Realization from FD of IPO Proceeds 1358.68 0
Purchase of property, stores, equipment -896.79 -645.01
Net Cash generated from Investing activities (B) 432.49 -2484.17 (includes IPO money)
Cash flow from Financing Activities
Money Raised from IPO 0 1840.61
Money obtained by taking Term Loans 0 200
Money obtained by issuing NCD 0 250
Money obtained from Short term borrowing 0 59.16
Repayment of Term loans + Unsecured loans -542.46 -155.30
Repayment of NCD -384.00 0
Repayment of Commercial Paper 0 -50
Finance Cost (i.e. Interest Paid) -79.85 -120.33
Net Cash Generated from Financing Activities (C) -1121.72 2025.25
   
Net Increase or Decrease in Cash and Cash Equivalents (A + B + C) 33.75 -1.07
Total Cash and Cash Equivalents 64.00 32.92

The table above provides details on the cash flow for the company for FY18 in comparison with the cash flow from FY17. I have omitted many line items from cash flow and tried to concentrate only on a few of the items that I felt are relevant for the discussion. Below are my observations, with respect to the cash flow statement:

  • Cash Flow from Operating Activities:
    • The company has been able to increase its net cash from operations, this clearly shows that year-on-year the company has been bringing in more money purely based on its retail operations.
  • Cash flow from Investing Activities:
    • When you generate cash from operating activities, you would want to invest in the growth of the company to build more stores. So the company went ahead and spent 896.79 crores to build stores. But the point to note is that the net cash generated from operating activities was only 722 crores. So the company spent about 176 crores over and above its net cash from the operations in order to build the 24 stores.
    • This excess amount has to come from somewhere. This ‘somewhere’ is actually the IPO proceeds. The company raised 1840 crores from the IPO, and out of this 1840 crores, the company used up 1358.68 crores in FY18.
    • But as we noted above the company was in need of 176 crores of additional cash for the planned expansion. So, what did the company do with the rest of the money? It actually paid back some of the loans as we will see below.
  • Cash flow from Financing Activities:
    • If FY17 was a year of cash coming into the company in the form of IPO, term loans and NCDs, FY18 was a year where the company saw money going out to repay these loans and NCDs.
    • In FY18 the company paid back 542.46 crores of the principal amount of term loans. It paid back 384 crores of NCD as well. This in-turn helped in reducing its interest costs. The company spent 79.85 crores as interest cost (compared to 120 crores in FY17).

In Summary, the company spent more money in acquiring tangible assets (building stores) than the net cash flow generated from its operations. To make up for the difference it used up part of the IPO proceeds. The other part of the IPO proceeds were used in repaying loans and NCD (and for some of its corporate expenses). The rest of the IPO money is still lying somewhere in the bank to be used up in coming years.

The company is opening new stores at the rate of few twenties every year. I feel that its growth aspirations are currently bound by the cash flow. In the coming years the company should see its profits increasing and correspondingly the number of stores opened should increase as well. This in-turn would increase the profits leading to more stores. The company seems to have entered into a self-funded growth cycle and is feeding its own growth. To me FY18 is the inflection point in the growth journey of the company.

Note: There is an increase in depreciation, this is due to the fact that it owns most of its stores. As the number of stores increase, the cumulative depreciation would increase as well.

Avenue E-Commerce Limited

In FY18, the parent company bought all the shares of Avenue E-Commerce from Mr. Damani and now Avenue E-Commerce Limited is owned by Avenue Supermarts. E-commerce is an exciting area. The big players from the shores beyond India are pumping in capital to get a pie of the growing e-commerce space. E-commerce is not an easy game and guzzles money. Avenue supermarts is not immune to this. Let us look at the numbers to get a feeling of the pain called e-commerce.

P&L Numbers for Avenue E-Commerce Limited

FY18 (Crores) FY17 (Crores)
Revenue (Crores) 44.57 1.59
Revenue Growth (%) 2703%
Expenses (Crores) 92.65 23.45
Expense (as a % of Revenue) 207% 1474%
Loss For the year (Crores) 48.08 26.12
  • Revenue: FY18 has seen a multifold increase in revenue from e-commerce operations. Revenue grew by 2703% to 44.57 crores. This is partly due to the fact that in FY17 the company did not have many pickup stores and the company was merely exploring the option of e-commerce. In FY18 the company had grown its footprint to about 41 pickup stores in Maharashtra, which resulted in the growth in revenue.
  • Expenses: The sad part lies in the expense numbers. In FY17, the expenses were 1474% of the revenue! In FY18 expenses were 207% of the revenue! Clearly the expenses are way beyond the revenue that is being generated.
  • Losses: The e-commerce subsidiary had a loss of 48.08 crores which was close to 100% more than FY17.

Let us look at the expense numbers to gain more insights into the reason for the dismal performance of the subsidiary.

FY18 FY17
Purchase of stock in trade (Crores) 42.87 2.70
Employee Expense (Crores) 12.81 5.53
Other operational expenses 9.71 2.43
Finance Cost (Crores) 0.54 0.49
Depreciation and Amortization (Crores) 10.64 6.19
Other Expense (Crores) 18.62 8.02
  • Purchase of stock in trade: The Company needs to buy/get the items before it can sell/give it to its end customers. An initial glance at purchase of stock in trade shows an interesting aspect. The subsidiary spends 42.87 crores in buying the products compared to its revenue of 44.57 crores. So 96% of its revenue is spent in buying the products. Now compare this with the parent Avenue Supermarts which spent about 85% of its revenue on purchasing the stock in trade. I will list both the numbers in a single table below.
Purchase of stock in trade FY18 (Crores) As a % of Revenue
Avenue Supermarts 12862 85%
Avenue e-commerce Limited 42.87 96.18%

This looks puzzling indeed. Why is it that the parent is more efficient in managing its input costs, whereas e-commerce arm is not able to do this? The only plausible answer is:

  • Step 1: The e-commerce arm takes the orders from customers on its website and re-directs the order to its parent, Avenue Supermarts.
  • Step 2: Avenue Supermart procures the stock from suppliers and sells it to the e-commerce arm at a slight discount.
  • Step 3: The e-commerce arm subsequently delivers the products to its customers and collects the money (Revenue).
  • Step 4: The difference between the money collected (Revenue) and the (supposedly) money paid to Avenue Supermarts is the operating margin which is very very thin.

This can be confirmed from the related party transactions section for the e-commerce arm. Out of the 42.87 crores of purchase of stock, 25.33 crores is from Avenue supermarts. I am still wondering as to the source of the rest 17.54 crores.

Related party transactions FY18 (Crores) FY17 (Crores)
Purchase of stock (from Avenue Supermarts) 25.33 1.42
  • Employee Expense: Employee expense has increased by more than 131%. Note that the employee expense may not involve the salaries of stores and warehouse staff as these employees are from a 3rd party company. So the company seems to have hired professionals to plan the e-commerce expansion and possibly engineers to execute their e-commerce plans.
  • Other Operational Expenses: This comprises of two main items, Contract labor charges and rent expenses.
    • Contract labor charges should be the salary paid to the 3rd party workers who help to manage the pick-up stores and packs the items.
    • Rent expenses should involve the rent paid for the pick-up stores and warehouses (if any) to store the items ordered by the customers.
Other Operational Expenses FY18 (Crores) FY17 (Crores)
Contract labor charges 3.00 .54
Rent Expenses 5.65 1.40
  • Other Expenses: There is a host of sundry expenses under this section. Out of these expenses, the two major ones are:
    • Marketing Expense: This is an important item. Other e-commerce sites are spending oodles of money on marketing. Compared to them D-mart is spending miniscule amounts. Hence the returns are commensurate with this expenditure.
    • Annual Maintenance Charges: I am not sure of the items that comprise this section. This forms a sizable chunk of other expenses though.
Other Expense FY18 (Crores) FY17 (Crores)
Marketing Expense 2.50 0.52
Annual Maintenance Charge 9.31 4.24

Cashflow statement for Avenue E-Commerce Limited

FY18 (Crores) FY17 (Crores)
Cash flow from Operating Activities:
Net Loss for the year (From P&L statement) -48.08 -26.12
Depreciation and Amortization 10.64 6.19
Tax Paid – –
Net Cash Used for Operating Activities (A) -40.31 -25.33
Cash flow from Investing Activities
Purchase of property, stores, equipment -9.55 -9.13
Net Cash generated from Investing activities (B) -10.14 -13.29
Cash flow from Financing Activities
Proceeds from issue of Equity Shares 52.04 38.97
Net Cash Generated from Financing Activities (C) 52.04 38.97
 
Net Increase or Decrease in Cash and Cash Equivalents (A + B + C)  1.58 0.34
Total Cash and Cash Equivalents  1.97 0.39

The table above provides details on the cash flow for the subsidiary for FY18 in comparison with the cash flow from FY17. I have omitted many line items from cash flow and tried to concentrate only on few of the items that I felt are relevant for the discussion. Below are my observations, with respect to the cash flow statement:

  • Cash Flow from Operating Activities:
    • The e-commerce operations are in red so the net cash from operating activities is in Red as well.
  • Cash flow from Investing Activities:
    • The company spent close to 10 crores in purchasing tangible and intangible assets. This put further strain on the cash flow.
    • So both cash flow from operating and investing activities are negative, there has to be a balancing force to counter these negatives. This comes from the Financing activities as described below
  • Cash flow from Financing Activities:
    • The subsidiary received 52.04 crores of money through issue of equity shares. I was not clear on this point though. Avenue Supermarts bought the stake from Mr. Damani and paid the money to Mr. Damani. How did the e-commerce arm manage to get cash form this transaction? Was additional equity issued to Avenue Supermarts?

In Summary, the e-commerce arm is in red due to loss in operations as well as due to the investing activities. In order to mitigate it, the company issued equity shares that provided the necessary cash. In the end, the subsidiary is net cash positive for FU18, but at what cost? This is the same story for the past two years. My concern is the viability of a business as it keeps bleeding. There cannot be a perpetual equity infusion to mitigate the losses from operations. I keep my fingers crossed

Align Retail Trades Private Limited

Align retail trades is the other subsidiary which is responsible for the company’s private labels (ex: Premia). It is responsible for the private labels for both the staples and groceries. Though the management says that they are not serious about private labels, the revenue numbers seem to indicate that the business is growing at a steady pace. The profit growth is lacking though. The table below shows the P&L for this subsidiary. It would be interesting to track the numbers over the next few years. I hope the subsidiary can improve its profit margins.

FY18 (Crores) FY17 (Crores) Growth (%)
Revenue (Crores) 701.89 587.85 19.3%
Expenses (Crores) 693.28 579.12 19.71%
Profit Before Tax 8.61 8.72 -1.2%
Profit After Tax 5.68 5.80 -2.0%
  • Revenue: Revenue grew at a modest rate of 19%. For a business that is not actively being pushed by the management, I feel the numbers are pretty decent.
  • Expenses: Expenses are pretty high. The major chunk of expenses is the stock bought from suppliers. Out of 691.28 crores of expenses, 671.66 crores is spent in procuring the stock. Employee benefit expense is about 3 crores which has remained stable. Finance cost is also at around 3 crores which is similar to the cost incurred in FY17. Other expense makes up about 10 crores which is again similar to the expense seen in FY17.
  • Profits: Due to higher expenses, the profits are less. The table below captures profits as a percentage of revenue. Clearly the numbers are not very promising. I am a little surprised with these numbers. I was under the impression that private labels are profitable. Since the raw material is procured from unorganized sources (Farmers etc) and the processing should ideally involve minimal activities like cleaning and packing (pulses, grains, masala etc), the margins should have been higher!
    • Then again, it probably depends on who is the supplier and who is the customer for these goods. If the parent company happens to either its supplier or its customer then it may not make much sense to delve much on the individual numbers for the subsidiary and it may be worthwhile to look at just the consolidated numbers.
FY18 (Crores) FY17 (Crores)
Profits as a % of Revenue 0.8% 0.98%

Crystal Ball Gazing

When I started covering Dmart, I had made some predictions for FY20 (Click here for the Analysis), My estimates for FY20 for Dmart comprised of four different possible outcomes, namely, average case, worst case, best case and bullish case. I am capturing them again below.

  • Average case scenario: Let the revenue per square ft. stays at Rs. 31,120 till FY20. Assume the retail footprint of Dmart increases to 6.1 million sq. ft. by FY20.
  • Worst case scenario: Let the revenue per square ft. drops by 10% to Rs. 28,000 by FY20. Let the retail footprint of Dmart increases to 6.1 million sq. ft. by FY20.
  • Best case scenario: Let the revenue per square ft. increases by 15% to about Rs. 35,750 by FY20. Let the retail footprint of Dmart increases to 6.1 million sq. ft. by FY20.
  • Bullish Case scenario: Let us assume that the revenue per square ft is same as the best case scenario i.e. Rs. 35,750, but the PAT margin touches 7%. Let the retail footprint of Dmart increases to 6.1 million sq. ft. by FY20.

The table below captures the estimates for these four outcomes.

Average Case (Crores) Worst Case (Crores) Best Case (Crores) Bullish Case (Crores)
Revenue estimates by FY20 19169.92 17248 22022 22022
PAT estimates by FY20 in Crores 985.33

(Assuming PAT margin of 5.14%)

 886.54

(Assuming PAT margin of 5.14%)

 1131.93

(Assuming PAT margin of 5.14%)

 1541.54

(Assuming PAT margin of 7%)
EPS estimates by FY20 15.8 14.2 18.1 24.7

Let us now compare the FY18 results with my predictions for FY20.

  • Revenue Estimates: For FY18 the revenue was 15009 crores, the number is inching towards the worst case scenario. Looking at the revenue growth trend, the company should surpass the worst case and move towards Average Case by FY19 itself and hopefully by FY20 the revenue numbers beat the best case scenario.
  • PAT Estimates: For FY18 the PAT was 785 crores, again the PAT is closer to worst case scenario and by end of FY19 it might cross the worst case numbers and move towards Average case. And by FY20 we should be seeing the numbers hitting the best case scenario.
  • EPS estimates: For FY18 the EPS (assuming diluted EPS) is 12.51. Again, it is inching towards the worst case scenario and may move towards average case by end of FY19 itself.
  • Revenue per square feet: The revenue per square feet for FY18 is 32,719. This has already crossed the average case and inching towards Best Case scenario!
  • PAT margin estimates: For the first three outcomes, I had assumed the PAT margins to be 5.14%, but by FY18 itself the company has crossed this estimate and the PAT margin stands at 5.23%. The PAT margin is trending towards the bullish case!

Overall the numbers are trending towards average case by FY19 and by FY20 I am hoping the company will comfortably hit the best case scenario.

Summary

  • FY18 was the year when the company came out with an IPO and let the public participate in its growth story. Using the proceeds from the IPO, the company managed to reduce its debt considerably and thereby reduce its interest cost.
  • The company has prudently used the proceeds to increase its store count as well. It added 0.84 million square feet of retail space and expand its footprint to 4.9 million square feet of space.
  • With respect to store growth, FY18 belonged to Telangana and Andhra Pradesh. Nine out of the twenty four stores were opened in these twin states.
  • P&L wise, revenue grew at a decent pace of 26% and the PAT grew at a stellar rate of 62%.
  • From Balance sheet perspective, shareholder equity continues to remain the major liability for the company. The company has steadily increased its tangible assets. Borrowings have seen a decline and I hope the company manages to maintain a low debt and if needed, plan for a calibrated increase in debt levels.
  • From Cash flow statement we note that the net income from operations has grown. The company spent its earnings on expanding the store count. The company also paid back a large part of its long term borrowings and NCDs using the IPO proceeds.
  • E-commerce subsidiary continues to make losses. I am sure the management has a plan to turn it into a profitable business. I am all ears.
  • In the past, I had made some predictions on the future earnings for the company. I am excited to see that the company seems to be heading towards the best case scenario (and might hit the bullish case as well!)
  • As the years go by, the company should see its profits increase and correspondingly the number of stores opened should increase as well. This increase in profits should further lead to more stores. I feel that the company is now in a self-funded growth cycle and feeding its own growth. To me, FY18 is the inflection point in the growth journey of the company.

References

  • Avenue Supermarts annual report for FY18
  • Avenue Supermarts Q4 FY18 results
  • News articles on Avenue Supermarts.

Disclaimer

I am not a SEBI registered research analyst. The information provided above is my subjective view based on what I have read on different websites, annual reports, and quarterly reports of various companies which I assume to be accurate. The above information should not be treated as an offer/advise to purchase a specific stock/investment instrument. Since these are my subjective opinions, I could be wrong in my understanding or presentation of information. I do not claim that the above information is complete or can be relied upon as such. I cannot be held responsible for any loss or damage caused due to any inadvertent error in the above information. I will not be liable for investment decisions made by readers of this article based on the above information. I am not an investment advisor. I may or may not have position in the above company. Please consult your investment advisor for all your investment needs.