DMart Q4 Review - Newer Stores, Discretionary Category Drags; Structural Moats Keep Us Positive: Systematix

Systematix Research Report

Avenue Supermarts Ltd. reported ~20% YoY revenue growth in Q4 FY23, with like-for-like growth of 11% and 24% for H2 FY23 and FY23 respectively (for stores older than 24 months) and addition of 18 stores.

Newer stores continue to impact overall throughput with a continued fall in four-year revenue compound annual growth rate to 19.7% (above 20% for last five quarters).

Ebitda margins were down 100 bps YoY to 7.6% led by a 90 basis points gross margin contraction to 13.4% as weaker general merchandise and apparel sales continue to impact margins.

Other expenses rose 20 bps which was partially offset by 10 bps savings in employee costs. Profit after tax came in line with our expectations at Rs 5.05 billion, up 8% YoY. While the revenue per square feet was up 3.1% YoY to Rs 30,857, it remains below the levels seen in Q4 FY20 and Q4 FY21.

Ebitda per sqft was also weak as expected with a fall of 9.5% YoY to Rs 2,335. Negative operating leverage, large size of newer stores and weak footfalls have all been impacting the revenue throughput and consequently margins.

DMart opened 18 new stores during Q4 FY23 (40 stores FY23), taking its total store count to 324, covering an area of 13.4 million sqft.

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