The revenue/EBITDA/PAT was up 23.6%/12.1%/41.6% since last year on the back of strong store expansion. The company expanded 18 stores in the last quarter and 38 in Financial Year 2020. Same-Store Sales Growth i.e. SSSG was steady at 10.9% for Financial Year 2020. Bottomline benefited from a lower effective tax rate. While business growth was strong through most of the quarter, the lockdown dented revenue in March (up just 11% since last year) and EBITDA margin dipped 120 bps since last year in the wake of adverse mix and the challenging environment.

dmart financial highlights

Store expansion exceeds expectation

SSSG for Financial Year 2020 stood at 10.9%, bolstering revenue growth for the year to 24.3% since last year. Traction continues to be strong on the online platform (DMart Ready) with revenue growth of 120% since last year in Financial Year 2020, along with a 3.2% EBITDA margin. The company opened 38 stores in Financial Year 2020, topping the guidance of 30 (of course 6-8 stores spilt over from Financial Year 2019); total store count is now 214.

dmart same store

Cluster Expansion

DMart uses Walmart's playbook by creating a cluster of stores within a region where it has a deep understanding of customers and serves their needs well. You get supply chain efficiency when you open multiple stores within a 50-kilometre radius. Ignatius Navil Noronha, CEO of DMart, says that ​"If you have a good concentration of stores and if you have your own fleet and if you can push your truck to do more trips per day, that is where you get the benefit of logistics which globally all retailers do. In India, the efficiency is only 50 km due to traffic, compared to foreign countries which have a reach of 200-300 km.”

dmart

From Management's desk

Management expects a sharp deterioration in near term margins as 1) COVID-19 scare will impact footfalls due to social distancing norms 2) April sales have declined by 45% even as the first half of May sales were are up 17% on Month-on-Month basis 3) Higher costs of sanitation, 70% absenteeism and double salary to working front level employees up to 3rd May and lack of higher-margin general merchandise sales likely to impact margins in the first quarter of the Financial Year 2021. Due to slowdown in construction activity, store addition will be lower than planned for Financial Year 2021.

Downward factor

The second wave of COVID-19

Consumption slowdown could hurt SSSG trends

Potential opening of store delays

Rising competition from the new e-commerce-focused players

A resurgence of kirana stores

Change in regulation policies

Teji or Mandi?

DMart is an emerging national supermarket chain, with a strong focus on value retailing. Its mission is to provide the best value for its customers so that every rupee they spend on shopping gives them more value for money than they would get anywhere else.

Despite the near- term slowdown, our take is Teji for DMart as its long-term investment case remains compelling, driven by multi-decade growth opportunities in the modern grocery retail with its focus on value retailing and low-cost approach, having a winning business model.

Teji Mandi is a proactive investment manager for everyone. To read more of our research, please visit https://tejimandi.com/research