Avenue Supermarts, the operator of hypermarket retail chain D-Mart, has reported a 38.5 percent year-on-year decline in consolidated profit for the quarter ended September 2020 but sequentially, profit grew by five-fold amid easing of lockdown restrictions.
The company's revenue during the quarter also fell 11.4 percent to Rs 5,306.2 crore compared to the September quarter 2019 but there was 36.6 percent sequential growth.
"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," CEO & Managing Director Neville Noronha said.
However, "discretionary consumption has seen significant improvement over Q1FY21. We were at 22.7 percent revenue contribution from general merchandise and apparel business in Q2FY21 as compared to the usual 27.3 percent contribution for the year. Almost all of the shopping in Q1FY21 was need-based and essential in nature. In light of that, Q2FY21 sales contribution from general merchandise and apparel is encouraging," he added.
Other income also supported profitability, rising significantly to Rs 52.2 crore in the September quarter from Rs 8.1 crore YoY.
At the operating level, consolidated earnings before interest, tax, depreciation and amortisation (EBITDA) dropped 36 percent to Rs 329.5 crore and margin contracted 240 bps to 6.2 percent compared to thecorresponding quarter of last fiscal.
"Overall better-than-expected performance led by a quicker normalisation of overall business with a strong sequential recovery. We expected a decline of 15/47/49 percent for revenue/EBITDA/PAT respectively," Himanshu Nayyar, Lead Analyst–Institutional Equities, Yes Securities told Moneycontrol.
Gross margins were in line with expectations at 14 percent, given the inferior mix in the favour of FMCG and staples while EBITDA margins were impacted due to negative operating leverage, he said.
The company said it continued to focus on new stores and has opened six DMart stores in the quarter. "We have closed two of Mumbai stores for customers and converted them into fulfillment centers (FC) for our ecommerce business."
The stock gained only 5.2 percent during theSeptember quarter and 8 percent year-to-date.
After the recent underperformance, the stock is currently trading at 55x FY22E P/E and 35x EV/EBITDA, Nayyar said.
"While we have been negative on the stock given the risks to FY21 earnings and medium-term risk of multiple de-rating, the better-than-expected recovery trajectory and the correction in valuation multiples makes us turn more constructive on the stock. Increased focus and increasing traction in DMart Ready is another positive sign," he added.
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