Towards the end of July, Avenue Supermarts announced the quarterly results for Q1 FY19. Let us have a look at the results. Before we look into the results, I would recommend you to look at the below links.

Financial Analysis

Q1 FY19 (Crores) Q1 FY18 (Crores) Growth (%)
Revenue 4573.67 3621 26.3%
Expense 4187.09 3352.99 24.87%
PBT 386.58 268.01 44.24%
PAT 250.61 174.77 43.39%
  • Revenue: The revenue growth for Q1 was encouraging at 26.3%. In Q4 FY18 we saw the revenue grow by 22.5% and In Q3 the revenue grew by a similar rate at 22%.
  • EBITDA: EBITDA improved to 39.4% in Q1 to 423 crores. In Q4 the growth in EBITDA was 41.8% to 294 crores. In Q3 the EBITDA grew by 46.5% to 422 crores. The EBITDA margin for this quarter was 9.3%. In Q1 FY18 EBITDA margin was 8.4%.
  • PAT: In Q1 the PAT has grown by about 43%. In Q4 the PAT had grown by 73% and in Q3 the PAT had grown by 63%. The PAT margin for the company was 5.5% in Q1 FY19 and it was 4.8% in Q1 FY18. Generally Q1 is supposed to have high profit margins. The company CEO indicated that the PAT came in higher due to operational efficiencies and lower finance costs. The gross margins were less as the company intentionally sold products at lower margins. I am wondering if there is any stress due to competition!
  • The diluted EPS increased to 3.96. The share dilution had been absorbed by Q1 FY18. So the growth in PAT and growth in EPS are now in-line with each other for this quarter.
Q1 FY19 Q1 FY18 Growth (%)
EPS 3.96 2.76 43.47

Expenses

Q1 FY19 (Crores) Q1 FY18 (Crores) Growth (%)
Purchase of Stock in trade 3926.45 3041.35 29.10%
Employee Benefit expense 76.96 64.00 20.25%
Finance Cost 10.02 24.33 -58.81%
Other Expense 212.43 188.96 12.42%
  • Purchase of Stock in Trade: This is the major expense for the company and is expected to be one. Let us now calculate its contribution as a percentage of the total revenue which is captured in the table below. In Q3 FY18 this value was 77% but in Q4 FY18 the major expense has shot up to 88% of its revenue. In Q1 FY19 it had dropped to about 86%. The company may not have been able to sell high margin products.
Q1 FY19 (%) Q1 FY18 (%) Growth (bps)
Purchase of Stock in trade as a % of revenue 85.84% 84% 184
  • Employee Benefit Expense: Employee benefit expense includes the salaries of permanent employees. The expense for the contract employees is captured in “other expenses”. Year-on-year the employee benefit expense has decreased by 12 bps. Even though in absolute number terms the employee expense has increased, but as a percentage of revenue the number has seen a decrease. This value of 1.68% is negligible. Clearly the company does not need to spend a lot of money on employee salaries.
Q1 FY19 (%) Q1 FY18 (%) Growth (bps)
Employee expense as a % of revenue 1.68% 1.76% -12
  • Finance Cost: Finance cost has come down by about 46bps. The company has paid back most of the loans using the proceeds of the IPO which has resulted in lower finance costs. The table below shows the finance cost as a percentage of revenue. As of Q1, finance costs are negligible. With such low levels of debt the company has room to expand at a much faster rate by taking loans in future.
Q1 FY19 (%) Q1 FY18 (%) Growth (bps)
Finance Cost as a % of revenue 0.21% 0.67% -46
  • Other Expense: For Dmart, Other expense is a sizeable number. The company brackets contract employee (i.e. instore employee) payment, lease rentals, store operation costs like electricity bills, repairs and maintenance, legal fees, travel expenses for key employees etc as other expense. The table below shows the other expenses as a percentage of the overall revenue. Year-on-year the other expense as a percentage of revenue has decreased by 56 bps. Over the past few quarters this value has been constantly decreasing.
Q1 FY19 (%) Q1 FY18 (%) Growth (bps)
Other Expense as a % of revenue 4.64% 5.21% -56

As noted in Q4 FY18, the growth in expenses is less that the growth in revenue. This trend was seen in Q1 FY19 as well. The management has been able to contain its expenses.

Utilization of IPO Proceeds

Post IPO, the proceeds earmarked for general corporate purpose has more or less been exhausted. In Q1 the company further spent about 36 crores on repayment of loans. The company further utilized 50 crores in building new stores and putting fitouts in these shops. Quarter by quarter the company has been nibbling the IPO amount.

IPO Plan (Crores) Utilized as of Q1 FY19 (Crores) Utilized as of Q4 FY18 (Crores) Utilized as of Q3 FY18 (Crores) Utilized as of Q2 FY18 (Crores) Utilized as of Q1 FY18 (Crores)
Repayment of NCDs/Term Loans 1080 899 864 864 864 864
Construction of fitouts for new stores 366.6 144.93 94.02 45.9 9.89 0
General Corporate purposes 423.4 423.05 420.25 419.79 418.27 417.45

E-Commerce

  • The “Dmart ready” store count has now reached 58. These are the 400 odd square feet outlets from where people can pick up the items that they ordered online from the dmart website.

Summary

  • The company has been able to grow the revenue and PAT at a very healthy rate.
  • Compared to growth in revenue, the growth in expense was relatively less which indicates that the company is efficiently managing its resources.
  • The company was able to open only 2 new stores in Q1 FY19. The store count as of June 2018 is 157 and the total retail area for the company is about 5 million square feet.
  • Overall it seemed like an uneventful quarter.

References

  • Quarterly results for Q1 FY19
  • News Articles post the Q1 FY19 results.

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.