Avenue Supermarts soars 5% in weak market post Q2 business update

The company reported an 18.51% YoY increase in its standalone revenue from operations at Rs 12,308 crore in the September quarter

Shares of Avenue Supermarts, which owns and operates DMart stores, rallied 5 per cent to Rs 3,899 on the BSE in Wednesday's intraday trade, in an otherwise weak market, after the company reported an 18.51 per cent year on year (YoY) increase in its standalone revenue from operations at Rs 12,308 crore in the September quarter (Q2-FY24).

By comparison, the S&P BSE Sensex was down 0.88 per cent at 64,398 at 12:57 PM. The stock of D-Mart hit a 52-week high of Rs 4,601.90 on October 4, 2022, while it hit a 52-week low of Rs 3,292.65 on March 16, 2023.

The company had registered a revenue from operations of Rs 10,385 crore in the same quarter a year ago (Q2-FY23). In the July-September quarter of FY22 (Q2-FY22), Avenue Supermarts' standalone revenue stood at Rs 7,650 crore.

The total number of DMart stores as of September 30, 2023, stood at 336 from 327 at the end of the June quarter.

DMart is a national supermarket chain with a focus on value-retailing. It offers a wide range of products with a focus on the Foods, Non-Foods (FMCG), and General Merchandise & Apparel product categories.

The management said the company remains focussed on its strategy of offering its customers good quality products at great value, based on the Everyday Low Cost/Everyday Low Price (EDLC/EDLP) principle.

"D-Mart's revenue per sqft, which remained subdued in the recent past mainly due to the addition of larger store sizes and weak discretionary spending, is now seeing a pick-up. It is evident from the reducing gap between the revenue/store growth and revenue/sqft growth in the last three quarters (revenue/sqft improved from Rs 31,807 in Q4-FY23 to Rs 35,869 in Q2-FY24)," according to Motilal Oswal Financial Services (MOFSL).

The brokerage firm believes the improvement in revenue per sqft indicates improved contribution from larger stores. Industry-wide commentary has indicated a persistent slowdown in the discretionary category in Q2-FY24, which may be still hurting the non-food category (25-30 per cent of revenues). However, it is expected to improve in Q3-FY24 with the onset of festive demand, MOFSL added.

CRISIL Ratings, meanwhile, believes Avenue Supermarts' credit profile will benefit from improvement in business profile, supported by steady store expansion which will benefit revenues and also ensure healthy operating profitability.

The company is also expected to sustain its debt metrics at superior levels with strong annual cash generation and healthy financial flexibility, while pursuing organic growth.

In April, the rating agency had revised the long term rating outlook of Avenue Supermarts bank loan facilities to positive from stable. "The revision in outlook reflects the company's strong presence in the organized food & grocery retail segment, its continually improving geographic footprint benefitting scale of operations while maintaining strong operating efficiencies, and a robust financial risk profile. These strengths are partially offset by susceptibility to regulatory changes and intense competition in the segment," CRISIL Ratings had said.