DMart finishes the FY21 challenge well, but it is not immune to a new wave of covid

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MUMBAI : When the going gets tough, the tough guys start. That probably sums up what the 2021 (FY21) fiscal year for food and grocery retailer Avenue Supermarts Ltd. looked like. Avenue runs the DMart retail chain.

The first half of fiscal 21 for the company was terribly affected by the impact of the covid-19 pandemic with own-source revenue down about 34% year-over-year in the quarter of June. The drop in revenue was reduced to 12% in the September quarter. The following quarters saw further improvements. In fact, revenue increased in the December quarter by 10% year over year. Revenue growth improved further in the March quarter to 18%.

But the big problem now is that India is experiencing a second wave and that means Avenue’s takeover would be halted. Analysts at JM Financial Institutional Securities Ltd sum it up beautifully: “The progression here could have been as if nothing had happened in between, if the second wave of the pandemic had not struck.

The broker added in a May 8 report: “DMart’s March quarterly report reflects the near total return to normalcy of the business within 9 to 12 months of the foreclosure-related disruptions being first put in place. March 2020. Revenue per store is up 8% from the level for the quarter of March 2019 with a margin also higher compared to the level of two years ago. “

The new wave of covid has led to the imposition of various restrictions in the regions, which is likely to affect Avenue’s revenue for the foreseeable future. Taking note of this, analysts lowered their revenue estimates for FY22.

Avenue said: “In general, over 80% of our stores operate significantly fewer hours (not to exceed four hours per day) or are even closed for one to a week or closed on weekends. These closures have a negative and serious impact on our income. “

In FY21, the company opened 22 new stores and converted 2 stores into distribution centers for Avenue E-Commerce Ltd, bringing the total number of stores to 234 at the end of March.

Regarding the March quarter results, earnings before interest, taxes, depreciation and amortization (EBITDA) stood at 8.4%, down 86 basis points from the December quarter. One basis point is equal to 0.01%. As an indication: the Ebitda margin for the quarters of March 2020 and March 2019 was 6.7% and 7.5% respectively.

Overall, for FY21, Avenue’s revenue was down 3.6% year-over-year, but net profit fell at a higher rate of nearly 14%. Weak operating margin performance weighed on profitability for the year as EBITDA margins contracted by 128 basis points. In FY21, food, non-food (FMCG) and general merchandise and clothing accounted for 57.4%, 19.69% and 22.90% respectively of revenue.

Meanwhile, in the first trades on Monday, Avenue shares were trading lightly on the National Stock Exchange. Understandably, the challenges of covid-19 weighed on feelings for the stock, which is down about 13% from its 52-week high on March 5. Admittedly, valuations have corrected a little, but the stock remains expensive.

As analysts at ICICI Securities Ltd point out in a May 9 report, “after the significant underperformance (over 35%) of stocks over the past year, valuations have become somewhat more palatable (the The stock is now trading at 73 times the earnings price and 50 times the Ebitda on FY2023e). “The broker’s target price of Rs2,600 is about 12% lower than the current DMart share price.

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