by Kritika Arora
Avenue Supermarts has surpassed analysts’ estimates on net profit and operating margin front during April-June quarter, but revenue per sq ft below pre-covid levels despite normal operating conditions due to impact on demand due to inflation Stayed. ,
Avenue Supermarts, operator of DMart retail stores, posted a net profit of Rs 679.64 crore during the quarter on July 9, up 490% year-on-year and ahead of Bloomberg’s consensus estimate of Rs 589 crore. The growth in profit was on the back of a 94% improvement in sales at Rs 9,806.89 crore, up 590 basis points (bps) over the previous year to Rs 1,008 crore.
Analysts said operating margins improved on the back of an increased product mix of general merchandise and apparel, driven by higher margins and the company’s cost optimization measures.
However, Avenue Supermart’s revenue per sq ft stood at Rs 8,389, nearly 90% lower than pre-Covid levels and this was due to lower discretionary demand due to inflationary pressures.
The company in a statement also said that the general merchandise and apparel categories, though witnessed better traction than the previous quarters, are still somewhat more prone to the disruptions led by the Covid-19 and sharper inflationary impact. It added that even the discretionary contribution mix has not yet reached pre-pandemic levels.
“High inflation over the past two years largely hides a potential strain in volume growth for the discretionary categories of consumption,” the company said.
Besides, weak discretionary demand on relatively higher sq ft area also contributed to lower revenue per sq ft for the company. Avenue Supermarts added 10 new stores during the quarter, taking the total store count to 294 and the total business area crossing 12 million square feet.
In the last three years, the company has opened 110 stores which are large format stores of over 50,000 square feet. Although these stores performed well during the quarter, the company’s revenue per square foot grew 4% annually over the past three years. Brokerage Jefferies has said in its report that it is yet to fully reap the benefits of large format stores due to the COVID disruptions.
The management highlighted that though the demand for discretionary products has not returned to pre-Covid levels, it is getting better. Jefferies increased its FY23/24 earnings per share estimate for the company by 7%, led by growth in gross margin during the quarter. It has maintained its hold rating for the company’s stock due to its expensive valuation.
Similarly, ICICI Securities has also increased its earnings estimates by 4% and 3% for FY13 and FY24. It has downgraded its rating on the company’s stock to link it to buyouts due to high competitive intensity and risk of slow turnaround of e-commerce operations.
Meanwhile, brokerage Motilal Oswal has maintained its neutral rating on the company, owing to the prominence of the new-age kirana model, weak revenue per sq ft and costly valuations at present.