DMart beats Street estimates: Profit grows 53% in Dec quarter to Rs 394 cr

Top line grows nearly 24 per cent despite weak consumer sentiment; EBITDA margins in Q3 for DMart came in at 8.8 per cent

Avenue Supermarts, which runs the DMart chain of stores in India, reported a 53.3 per cent year-on-year (YoY) rise in net profit at Rs 394 crore for the quarter ended December 31, 2019 (Q3), beating Street estimates.

The growth was driven in part by a lower corporate tax rate, as well as higher revenue and operating income, sector experts said. 

Profit before tax for the period under review stood at Rs 497.34 crore, a YoY growth of nearly 26 per cent.

A consensus estimate of analysts polled by Bloomberg had pegged net profit for the December quarter at Rs 359 crore. 

Net sales for the period grew nearly 24 per cent to Rs 6,752 crore, amid weak consumer sentiment.

Bloomberg had pegged analysts’ estimates of net sales at Rs 6,651 crore for the December quarter. This implied that the company remained aggressive with discounts, sector experts said. 

The grocery retail market in India, over the last few years, has become extremely competitive with both online (such as Bigbasket and Grofers) and offline players such as Reliance Retail pushing the pedal on discounts.

DMart follows an everyday low price (EDLP) model to drive value, which, Abneesh Roy, executive vice-president, research (institutional equities), Edelweiss, said, has intensified in the last few quarters. 

“Competitive intensity has increased, forcing value retailers such as DMart to continue pushing efficiencies of scale. This gives them room to offer more discounts, thereby sustaining top line growth,” he said.

EBITDA margins in Q3 for DMart came in at 8.8 per cent, which was a growth of 50 basis points over the year-ago period. 

Sequentially, this number was in line with the September quarter figure, when EBITDA margin stood at 8.7 per cent.

Net profit margin at 5.8 per cent in the December quarter has not only grown by 110 basis points YoY, but has also sequentially remained in line with the number reported in the July-September period (5.6 per cent).

In a statement, Neville Noronha, managing director (MD) and chief executive officer (CEO), Avenue Supermarts, said the net profit margin improvement in Q3 reflected the revision in corporate tax rate, which was slashed to 22 per cent from 30 per cent in September 2019.

Effectively (that is, after taking into account surcharges and education cess), companies like DMart has seen corporate tax rate come down by nearly 10 percentage points from 35 per cent to 25 per cent, sector experts said.

DMart also added seven stores in Q3, taking its total store additions to 20 in the first nine months of the current financial year.