Avenue Supermarts (D-Mart) - Q4FY21 First Cut - ICICI Direct

(CMP: Rs. 2888; MCap: Rs. 187125 crore)

D-Mart published its Q4FY21 results which were above our estimates across all parameters. The key highlight of the results were better than anticipated gross margins on the back of swift recovery witnessed in general merchandise segment in Q4FY21. Company accelerated its store addition pace with opening of 13 D-Mart stores in Q4FY21 (FY21: 22 stores). Capex too crossed last year's figure (Rs. 2029 crore vs. 1712 crore in FY20). CWIP stood at ~ Rs. 1020 crore vs. Rs. 364 crore in FY20 which indicates healthy store addition pipeline in FY22E. Local restrictions have progressively increased in April & May due to recent spike in cases (~80% of the stores operating for significantly lower number of hours).

Q4FY21 Earnings Summary

- As guided by the management in its pre-quarterly update, Avenue Supermarts reported steady topline growth of 18.5% YoY to Rs. 7411.7 crore (2 year CAGR: SSSG (2 years and older stores) for Jan-Feb came in at 6% YoY, while the trajectory declined significantly to negative 9.4% for the first fifteen days of March primarily due to partial lockdowns. . The second fortnight of March witnessed significant growth owing to benign base of last year. The company has expanded its e-commerce operations with soft launch of D-Mart Ready in selected pin codes of Ahmedabad, Pune, Bangalore and Hyderabad. Company will continue its controlled acceleration for D-mart Ready to capture e-commerce opportunities.

- Gross margins improved by 120 bps YoY to 14.8% (I-direct estimate: 13.5%) despite increase in RM prices and supply side constraints for non-FMCG segment. Company witnessed strong recovery in discretionary spending in Q4FY21. Agile opex management (other expenses and employee cost up by 13% and 8% YoY, respectively) resulted in EBITDA margins expanding by 160 bps YoY to 8.3% (down 90 bps QoQ, I-direct estimate: 6.6%). EBITDA grew by 47% YoY to Rs. 612.7 crore.

- Owing to higher other income (up 38% YoY) and healthy operational performance, company reported strong bottom-line growth of 53% YoY to Rs. 413.9 crore (I-direct estimate: Rs. 300.9 crore).

For FY21, company reported marginal revenue de-growth of 3% with SSSG coming in at negative 13.1% (vs. 10.9% in FY20). Despite share of revenues from General Merchandise & Apparel segment declining by ~440 bps YoY to 22.9% in FY21 (which yields higher gross margins), company has managed to maintain its gross margins for the year with contraction of mere 28 bps YoY to ~15%. %. We anticipate lower quantum of overall discounting in the initial quarters to have negated the impact of unfavourable product mix. On the balance sheet front, inventory days increased by ~ 5 days to 34 days in FY21 (FY20: 29 days). The management highlighted that it is saddled with excess inventory since it had built owing to surge in sales in Q3 and Q4FY21. Company generated operating cashflows worth Rs. 1360 crore with capex of Rs. 2029 crore (Negative FCF: ~ Rs. 670 crore). However, owing to QIP proceeds (raised in FY20), company continues to have robust balance sheet with cash and investments worth ~Rs. 2600 crore as on FY21 (FY20: Rs. 3250 crore). Near term outlook remains challenging given the uncertain scenario and various limitations on store operations due to strict lockdowns enforced by local authorities which would significantly impact the footfalls. However, given its resilient business model and healthy balance sheet we anticipate the company to tide over the current unprecedented scenario.

We would be coming out with a detailed report soon.

Shares of Avenue Supermarts Ltd was last trading in BSE at Rs.2888.75 as compared to the previous close of Rs. 2878.05. The total number of shares traded during the day was 17826 in over 1850 trades.

The stock hit an intraday high of Rs. 2954.95 and intraday low of 2851. The net turnover during the day was Rs. 51929401.

Source : Equity Bulls

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