Avenue Supermarts falls 2% as profit dips 38% YoY in September quarter

Ebitda margin contracted 240 basis points to 6.2 per cent in Q2FY21 from 8.6 per cent in the year-ago quarter

Shares of Avenue Supermarts, which runs the DMart chain of stores in the country, slipped 2 per cent to Rs 1,949 on the BSE on Monday after the company reported a 38.4 per cent year on year (YoY) fall in consolidated net profit at Rs 199 crore in the September quarter (Q2FY21). The company had reported a profit of Rs 323 crore in the same quarter of last year.

The stock has underperformed the market by falling 8 per cent in the past month, as compared to 2.6 per cent rise in the S&P BSE Sensex.

The company's consolidated total revenue for the quarter declined 11.43 per cent YoY to Rs 5,306 crore from Rs 5,991 crore in the year-ago quarter. Ebitda (earnings before interest, taxes, depreciation, and amortization) for the quarter under review declined to Rs 330 crore from Rs 517 crore YoY. Ebitda margin contracted 240 basis points to 6.2 per cent from 8.6 per cent in the year-ago quarter.

Nonetheless, the management’s commentary had a positive bias with the scenario matching normalcy levels. The management said month-on-month sales have improved during this quarter – August was better than July and September was better than August.

The fast moving consumer goods (FMCG) and staples demand remains robust. September 2020 sales of all stores exceeded September 2019 sales for FMCG and Staples while General Merchandise and Garments did lesser sales in the same period. However, discretionary consumption has seen significant improvement over Q1FY21, it said.

The progress of the pandemic and its impact on consumer spending during the festival period will determine the company’s financial performance for the October-December quarter. While large suppliers and FMCG business is trending better on sales as well as supplies, supply chains and manufacturing in the non FMCG SME sector will take some time to get back to pre-Covid levels, the management said.

Over the years, D-Mart has proven to be a resilient business model generating superior RoIC (return on invested capital) of 23 per cent and healthy fixed asset turnover ratio of 4.1x. Of the total QIP proceeds (Rs 4,078 crore), the company has utilized Rs 1,213 crore mainly towards retirement in total debt (Rs 700 crore).

“Robust liquidity position expected to provide impetus to store addition pace (mainly from FY22E onwards). Near term headwinds may have negative impact on the performance in FY21E but we remain structurally positive on the company and its long term growth prospects”, analysts at ICICI Securities said in result update.

At 09:19 am, the stock was trading 1 per cent lower at Rs 1,970 on the BSE, as compared to 1 per cent rise in the S&P BSE Sensex. A combined 137,000 equity shares have changed hands on the counter on the NSE and BSE, so far.