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Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg EDEL <GO>, Thomson FirstCall, Reuters and Factset Edelweiss Securities Limited
KEY DATA
Rating HOLD Sector relative Overweight Price (INR) 2,049 12 month price target (INR) 2,157 Market cap (INR bn/USD bn) 1,327/18.1 Free float/Foreign ownership (%) 2,026.6/620.7
What’s Changed Target Price
Rating/Risk Rating ⚊
INVESTMENT METRICS
Ace of the pack still; time to evolve
Avenue SuperMarts (DMart) has aced the offline retail segment via its execution prowess, a rarity in food & grocery (F&G) retailing. Organized F&G has clocked stupendous growth and remains the biggest migration play in retail. In fact, Reliance Retail’s takeover of Future Retail has further consolidated the industry, entrenching these two strong players deeper. Our bottom-up analysis reveals DMart has
potential to open ~400 stores more (FY20: 214; FY20–22E target: 60).
In online retail, DMart has been conservative hitherto and has a lot of catch-up to do with peers. In light of the hastened online migration and JioMart’s aggression, a compelling/aggressive strategy is imperative for DMart’s future growth. Maintain ‘HOLD’.
FINANCIALS (INR mn)
Year to March FY20A FY21E FY22E FY23E
Revenue 2,48,702 2,26,625 3,23,563 3,95,184
EBITDA 21,283 16,226 27,746 34,282
Adjusted profit 13,010 10,425 18,209 22,595
Diluted EPS (INR) 20.1 16.1 28.1 34.9
EPS growth (%) 38.9 (19.9) 74.7 24.1
RoAE (%) 15.6 9.0 14.0 15.0
P/E (x) 110.7 138.1 79.1 63.7
EV/EBITDA (x) 67.6 87.9 51.5 41.5
Dividend yield (%) 0 0 0 0
PRICE PERFORMANCE
F&G retailing still lucrative, demands execution; DMart aces
F&G remains the biggest value migration play in retail (merely 4% organised share).
Despite the humungous opportunity, most players have failed on execution, given
wafer-thin margins. DMart is among the few to have profitably mastered the game
via its locations and ELDP/EDLC focus, which have created a virtuous network loop.
The Reliance Retail-Future Group deal has consolidated the market further, making
it better for incumbents. What would have been worrisome is if a company with an
unproven execution record were up against Reliance plus Future Retail. DMart’s
execution has been proficient, which makes it highly probable that it would also
partake of the benefits of this opportunity with Reliance.
E-commerce scale-up imperative for DMart; JioMart now aggressive
F&G will continue to be dominated by offline/brick & mortar (B&M) in the near
future (13% of organised F&G by FY25E). However, given the pace of e-commerce
growth, it is not too long before it becomes sizeable. We believe time is ripe for
players to get the model right before scaling it up. While DMart has cracked B&M
retailing, it has treaded cautiously in online retailing. A comparison with other
providers shows DMart Ready must ramp-up in many categories, if it has to replicate
its offline success online. Besides, with JioMart scaling up fast, it is imperative for
DMart to get its online model in place.
Explore:
Outlook and valuation: All priced in; maintain ‘HOLD’
We remain positive on DMart given the long-term structural play, lean cost
structure, strong liquidity support and a superior execution record. In addition, its
innovation and agility to respond to change (DOW, reduction in discounting, etc)
gives it an advantage over other retailers. However, owing to lofty valuations, we
maintain ‘HOLD/SP’ with a TP of INR2,157 (50x FY22E EV/EBITDA). The stock is
trading at 51.5 FY22E EV/EBITDA. Upside risks to our thesis stem from faster-than-
expected store expansion and increasing traction in DMart Ready. Downside risk
remains from higher aggression from competitors and waning of DMART’s EDLP
moat.
-30
5
40
75
110
145
Sales Growth(%)
EPS Growth(%)
RoE(%)
PE(x)
Retail DMART IN Equity
25,000
28,400
31,800
35,200
38,600
42,000
1,700
1,870
2,040
2,210
2,380
2,550
Sep-19 Dec-19 Mar-20 Jun-20
DMART IN Equity Sensex
India Equity Research Retail September 23, 2020
AVENUE SUPERMARTS COMPANY UPDATE
Nihal Mahesh Jham Abneesh Roy Prateek Barsagade +91 (22) 6623 3352 +91 (22) 6620 3141 +91 (22) 4063 5407 [email protected] [email protected] [email protected]
Corporate access
Financial model Podcast
Video
AVENUE SUPERMARTS
Edelweiss Securities Limited
2 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL <GO>, Thomson FirstCall, Reuters and Factset
Financial Statements
Income Statement (INR mn) Year to March FY20A FY21E FY22E FY23E
Total operating income 2,48,702 2,26,625 3,23,563 3,95,184
Gross profit 37,673 33,087 49,182 60,068
Employee costs 4,561 4,759 5,759 7,034
Other expenses 6,064 6,345 8,413 10,275
EBITDA 21,283 16,226 27,746 34,282
Depreciation 3,744 3,709 4,176 5,053
Less: Interest expense 691 507 522 538
Add: Other income 600 1,926 1,297 1,515
Profit before tax 17,448 13,937 24,344 30,207
Prov for tax 4,438 3,512 6,135 7,612
Less: Other adj 0 0 0 0
Reported profit 13,010 10,425 18,209 22,595
Less: Excp.item (net) 0 0 0 0
Adjusted profit 13,010 10,425 18,209 22,595
Diluted shares o/s 648 648 648 648
Adjusted diluted EPS 20.1 16.1 28.1 34.9
DPS (INR) 0 0 0 0
Tax rate (%) 25.4 25.2 25.2 25.2
Important Ratios (%) Year to March FY20A FY21E FY22E FY23E
Store count 214.0 224.0 269.0 309.0
Store addition 38.0 10.0 45.0 40.0
Retail space (mn sq ft) 7.8 8.3 10.3 12.1
EBITDA margin (%) 8.6 7.2 8.6 8.7
Net profit margin (%) 5.2 4.6 5.6 5.7
Revenue growth (% YoY) 24.3 (8.9) 42.8 22.1
EBITDA growth (% YoY) 30.3 (23.8) 71.0 23.6
Adj. profit growth (%) 44.2 (19.9) 74.7 24.1
Assumptions (%) Year to March FY20A FY21E FY22E FY23E
GDP (YoY %) 4.8 (6.0) 7.0 0
Repo rate (%) 4.4 3.5 3.5 0
USD/INR (average) 70.7 75.0 73.0 0
SSSG (%) 10.9 (11.0) 27.0 9.0
COGS (%) 84.9 85.4 84.8 84.8
Staff costs (%) 1.8 2.1 1.8 1.8
Other expense (%) 30.8 33.0 30.0 30.0
EBITDA margin (%) 4.7 5.3 4.8 4.7
Inventory days 8.6 7.2 8.6 8.7
Valuation Metrics Year to March FY20A FY21E FY22E FY23E
Diluted P/E (x) 110.7 138.1 79.1 63.7
Price/BV (x) 13.0 11.9 10.3 8.9
EV/EBITDA (x) 67.6 87.9 51.5 41.5
Dividend yield (%) 0 0 0 0
Source: Company and Edelweiss estimates
Balance Sheet (INR mn) Year to March FY20A FY21E FY22E FY23E
Share capital 6,478 6,478 6,478 6,478
Reserves 1,04,320 1,14,744 1,32,954 1,55,548
Shareholders funds 1,10,797 1,21,222 1,39,431 1,62,026
Minority interest 5 5 5 5
Borrowings 37 37 37 37
Trade payables 4,335 4,242 5,412 6,427
Other liabs & prov 3,357 3,357 3,357 3,357
Total liabilities 1,20,762 1,31,204 1,50,701 1,74,432
Net block 58,698 59,704 76,871 91,087
Intangible assets 783 783 783 783
Capital WIP 3,644 4,000 4,800 5,000
Total fixed assets 63,124 64,486 82,454 96,869
Non current inv 0 0 0 0
Cash/cash equivalent 1,079 13,791 12,139 18,168
Sundry debtors 196 310 443 487
Loans & advances 1,091 1,200 1,200 1,200
Other assets 21,112 17,706 22,760 27,752
Total assets 1,20,762 1,31,204 1,50,701 1,74,432
Free Cash Flow (INR mn) Year to March FY20A FY21E FY22E FY23E
Reported profit 17,448 10,425 18,209 22,595
Add: Depreciation 3,744 3,709 4,176 5,053
Interest (net of tax) 691 2,433 1,818 2,053
Others (395) 0 0 0
Less: Changes in WC (3,762) 3,703 (1,900) (1,899)
Operating cash flow 12,801 16,757 16,169 20,189
Less: Capex 17,122 4,356 21,050 18,200
Free cash flow (4,320) 12,401 (4,881) 1,989
Key Ratios Year to March FY20A FY21E FY22E FY23E
RoE (%) 15.6 9.0 14.0 15.0
RoCE (%) 21.2 12.4 19.1 20.4
Inventory days 31 35 27 27
Receivable days 1 0 0 0
Payable days 8 8 6 6
Working cap (% sales) 0 0 0 0
Gross debt/equity (x) 0 0 0 0
Net debt/equity (x) 0 (0.1) (0.1) (0.1)
Interest coverage (x) 25.4 24.7 45.2 54.4
Valuation Drivers Year to March FY20A FY21E FY22E FY23E
EPS growth (%) 38.9 (19.9) 74.7 24.1
RoE (%) 15.6 9.0 14.0 15.0
EBITDA growth (%) 30.3 (23.8) 71.0 23.6
Payout ratio (%) 0 0 0 0
Edelweiss Securities Limited
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F&G retailing: Still lucrative; eventually
about execution
Following Reliance Retail’s acquisition of Future Retail, a question has again arisen:
what would be its impact on DMart? What remains unchanged though is the
opportunity in India’s F&G retailing. We believe the opportunity is big enough to
accommodate two well-funded players. The joker in the pack is the terms of trade
from FMCG players: can they undermine DMart’s Everyday Low Price (EDLP) moat?
Opportunity size unchanged; now a two strong player market
Organised F&G retailing has a market share of merely 4%, which is the lowest among
consumption categories. The organised F&G segment has clocked highest growth (reflected
in companies’ growth too) and is expected to remain the highest growing too. F&G category
remains the biggest value migration play in retail.
Organised F&G Retail’s growth trajectory to continue
Source: Company, Technopak, Edelweiss Research
F&G: Superior growth prospects in consumption basket
Source: Company, Technopak, Edelweiss Research
0
1,200
2,400
3,600
4,800
6,000
FY16 FY19 FY25E
(IN
R b
n)
0.0
5.0
10.0
15.0
20.0
25.0
30.0
Food &Grocery
Home &Living
Footwear Pharmacy Apparel Consumerdurable
Total Organized
(%)
FY16-19 FY19-25E
For FMCG companies, organized
channel (modern trade plus e-
commerce) makes up ~15% of market.
Organised retail is only ~4% of market
as a much higher portion of
vegetables and pulses is unorganised.
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Growing well, but organized F&G penetration lags other categories
Source: Company, Technopak , Edelweiss Research
Note penetration for FY19 for categories ex-F&G
F&G retailing is operations-heavy and scale/throughput are critical for success given wafer-
thin margins. The factors that have driven throughput in the past can be summed up as a
combination of: i) right locations and formats; ii) competitive pricing led by quick working
capital release for vendors and ii) an extremely lean cost structure. Thus, despite the
opportunity, most players have failed on execution.
Many competitors, multiple formats
Formats Reliance Future
Retail
Avenue
Supermarket Spencer Trent
Samara &
Amazon Amazon Flipkart
Convenience
stores
Reliance
Smart
Point
-Easy Day
-Nilgiris
Spencer's
Neighborhood
Supermarkets Reliance
Fresh Food Bazaar Nature's Basket Star Market More
Hypermarkets Reliance
Smart
-Big Bazaar
-Hypercity DMart
Spencer's
Hyper Star Bazaar
More
Megastore
Cash & Carry Reliance
Market Best Price
B2B marketplace JioMart Flipkart
Wholesale
E-commerce JioMart Tathastu DMart Ready Spencers.in My247market Via Amazon.in
-Amazon
Pantry
-Amazon
Fresh
Flipkart
Supermarket
Source: Company, Edelweiss Research
0
5
10
15
20
25
30
35
F&GFY16
F&GFY19
F&GFY22E
F&GFY25E
Jewelry &Watches
Consumerdurable
Apparel Footwear Pharmacy Home &Living
Others
(%)
Organized penetration - FY19 (%)
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Despite multiple players, market concentrated
Note: Hypercity was acquired by Future Retail.
Only three players managed to scale up
Source: Company, Edelweiss Research, For More – revenues for FY19
DMart is one of the few to have profitably mastered the game, from choosing the right
locations to creating its network loop. The key contributors in our view:
Operational efficiency plus better terms of trade from FMCG companies given the
lower payable days
Passing the price benefit to consumers and insisting on having the cheapest basket
Leveraging price to attract footfall (took share from unorganized players)
Highest revenue per square foot as result of smart mix of SKUs and products
Higher efficiencies in terms of all cost line items.
The key point we make here is that DMart is able to achieve its EDLP moat only because it has
thoroughly imbued the concept of EDLC as well. And, with EDLC in place, the company has
allowed every store to drop prices or match them, or even offer lower prices than local
competition, if needed.
0
20
40
60
80
100
FY12 FY16 FY19
(%)
Future Group Reliance D'Mart Spencer's More Hypercity* Star Others
0
80
160
240
320
400
Reliance AvenueSupermarkets
Future Group More Spencer Trent
(IN
R b
n)
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Profitability: DMart’s best in the game
Reliance DMart More Spencer Star Bazaar
Revenue (INR bn) 346 249 43 26 12
Revenue/Sq.ft 45,424 36,307 20,268 15,975 24,625
Gross Margin (%) NA 15.1 19.7 21.2 19.3
Others expenses (%) NA 6.6 20.3 18.1 25.4
EBITDA Margin (%) 7.8 8.6 -0.6 3.1 -6.1
RoCE (%) NA 20.8 -33.2 0.7 NA
Debt/EBITDA NA 0.0 NM 0.9 NA
Source: Company, MCA, Edelweiss Research
With organised F&G retailing moving from a three-player market to a duopoly, the industry
structure only gets better for incumbents. What would have been worrisome is if a company
with an unproven execution record were up against a combined entity such as Reliance plus
Future Retail. But DMart has scripted an enviable execution track record over the last two
decades and that implies it would make the most of the organised retailing opportunity
along with Reliance.
Reliance’s focus was anyways turning towards JioMart. The Future Retail acquisition will
possibly see Reliance focusing on first optimizing the store count and getting profitability back
rather than continuing expansion.
Can terms of trade offered by FMCG players change?
Following the Future Retail acquisition, Reliance will make up ~9% of FMCG companies’ top
line versus ~6% earlier. Hence, we do not expect FMCG companies’ bargaining power to be
impacted. Besides, critically for DMart, terms of trade should not be very different, given both
are relatively sizeable and important to these companies. However, we will keep close tabs
on terms of trade for these companies.
In terms of private labels, Reliance has a keener higher focus and is likely to introduce its own
brands. DMart however has a limited focus on private labels, mainly in categories such as
staples. Reliance, on the other hand, has a private label presence in staples as well as snacking.
Store expansion: Still a lot of potential in existing clusters
DMart has been conservative with expansion; it has been more a question of the company’s
prudence rather than opportunity. It was conservative in the earlier decade (55 stores over
FY02–12) when most other grocery retailers expanded aggressively, but expanded
significantly thereafter.
DMart follows a cluster-based store expansion strategy. It is evident from its store expansion
history that the states of Maharashtra, Gujarat, Telangana and AP constitute the core cluster.
Karnataka, MP and Chhattisgarh, TN and Rajasthan are upcoming clusters.
Cluster-based approach to expansion
Category State FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
Maharashtra 34 40 46 50 58 60 62 70 76
Gujarat 14 14 17 22 26 29 30 34 37
Telengana & AP 4 5 7 10 16 21 29 32 41
Karnataka 3 3 5 5 6 10 12 16 20
MP & Chattisgarh 2 4 5 9 9 16
TN 1 3 4 10
Rajasthan 3 5 5 7
Punjab - 3 4 5
NCR 1 1 1 1
Daman 1 1 1 1
Total 55 62 75 89 110 131 155 176 214
Core
cluster
Upcoming
cluster
New
ventures
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DMart’s presence in Indian states by GDP and population
Source: Company, Edelweiss Research
DMart has till now only managed to etch a sizeable presence in four Indian states, namely,
Maharashtra, Gujarat, AP and Telangana. Even in its core market of Maharashtra, only ~6%
of total market is currently organised, implying big room for expansion.
Even if we consider the current penetration in its core cluster (~1 store per 2mn of
population), DMart has the potential to open 350–400 stores in other geographies (ex-core
cluster) at present. The states it has a presence in only comprise ~50% of population/~65%
of GDP.
Key metrics by cluster
Population (mn) Stores Population/Store (Mn)
Core cluster 280 154 1.8
Upcoming cluster 341 53 6.4
New ventures 49 7 7.1
Not present 700 - -
Total 1,371 214
Source: Company, Edelweiss Research
Core cluster
31%
Upcoming cluster
27%
New ventures
7%
Not present
35%
Core cluster
20%
Upcoming cluster
25%New
ventures4%
Not present
51%
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Online leg-up imperative as JioMart
preps up Despite the growth potential in online (40% CAGR FY19–25E), India’s F&G market will remain
offline/B&M-focused (Etail to reach 13% of organized F&G by FY25E). That said, omni
capabilities will be critical as, given its pace of growth, it is not too long before it becomes
sizeable. Hence, we argue the time is ripe to get the model right before scaling it up.
India to remain a predominantly B&M market
Source: Company, Edelweiss Research
At present, DMart Ready is serving only Mumbai, although the company has plans to roll out
the service to other cities soon. During the lockdown, DMart had extended e-commerce
services to other cities, but those have been rolled back since.
DMart’s execution has been spectacular and best in class in B&M retailing, but the company
is still taking cautious steps in online retailing via DMart Ready. The channel doesn’t have a
history of profitability, a probable reason the company might be wary thereof. A comparison
with other online providers shows DMart will have to ramp up across many categories, if it
has to replicate its offline success online.
DMart yet to ramp up presence and service offerings
Platform Cities App Download
(mn)
Minimum
Order (INR)
Delivery fee
(INR) Delivery Timeline
Card
Tie-
ups
Membership Daily Order
('000)
Jiomart 200 5+ 0 0 2-3 Days Yes Yes 400
Amazon Pantry 300 NA 200 0-59 Next Day Yes Yes 100+
Big Basket 30 10+ None 0-50 Same Day + Express Yes Yes 250-300
Grofers 27 10+ None 0-49 Next Day Yes Yes 100+
Flipkart Supermart 26 NA 600 0-50 Next Day Yes Yes NA
DMart Ready 1 5+ 1000 49 2-5 days No No NA
Source: Company, Edelweiss Research, Google Playstore, Press articles
A comparison of prices and SKUs across platforms shows JioMart has a much sharper pricing
approach than others in staples, wherein it has a notable private label presence across most
categories. DMart remains cheapest in the discretionary segment, with high competition
from JioMart in the Personal and home care segment. SKUs at Amazon Pantry and Flipkart
Supermart are much fewer than DMart Ready and Big Basket; even JioMart has fewer options
than DMart Ready in the sampled categories.
0
1,200
2,400
3,600
4,800
6,000
FY19 FY25E
(IN
R b
n)
Organized F&G retailing
Etail Offline
CAGR: 40%
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Comparison of pricing basket
Products SKU DMart
Ready JioMart
Big
Basket
Amazon
Pantry
Flipkart
Supermart Cheapest
Staples
Aashirvaad Atta - Whole Wheat 10 kg 375 375 386 388 389 DMart Ready
Rice (Kolam - Private Label) 5 kg 299 270 310 295 307 JioMart
Rice (India Gate - Rozaana Basmati) 5 kg 345 345 379 349 380 DMart Ready
Tur Dal (Basic - Private Label) 1 kg 112 116 118 112 119 DMart Ready
Moong Dal (Basic - Private Label) 1 kg 135 117 111 140 161 Big Basket
Fortune Sunlite Refined Sunflower Oil 1 L 121 119 125 119 118 Flipkart Supermart
Tata Salt 1 kg 18 18 17 18 20 Big Basket
Sugar (Basic - Private Label/Basic) 1 kg 48 45 45 46 52 JioMart
Sub Total 1,453 1,405 1,491 1,467 1,546 JioMart
Personal and home care
Santoor Sandal and Turmeric Soap (pack of 4) 150 gms/unit 39 39 42 40 NA DMart Ready
Lux Soap (pack of 3) 150 gms/unit 30 29 36 36 NA JioMart
Dove Shampoo - Daily Shine 340 ml 195 180 218 200 218 JioMart
Parachute Coconut Oil 200 ml 72 73 78 85 75 DMart Ready
Colgate Active Salt Toothpaste 300 gm 127 124 124 119 138 Amazon Pantry
Tide Plus - Jasmine & Rose 2 kg 182 172 172 211 212 JioMart
Surf Excel Matic Top Load 4 kg 774 774 999 999 NA DMart Ready
Vim Dishwash Bar 200 gms/unit 14 13 13 13 20 Big Basket
Harpic Power Plus 1 L 148 153 139 151 160 Big Basket
Sub Total 1,580 1,557 1,821 1,853 823 Flipkart Supermart
Discretionary
Haldiram Aloo Bhujia 150 gms 31 33 35 35 35 DMart Ready
Cadbury Bournvita 1 kg 365 365 390 375 446 DMart Ready
Britannia Good Day Cashew Cookies 200 gms 30 30 40 NA 35 DMart Ready
Amul Cheese/Other brands 200 gms 113 113 122 NA 120 DMart Ready
Amul Butter 100 gms 45 44 43 NA 49 Big Basket
Gowardhan Classic Paneer 200 gms 77 75 97 NA 85 JioMart
Maggi/Kissan Tomato Ketchup 500 gms 90 92 100 100 105 DMart Ready
Maggi Masala Noodles 70 gms 11 11 11 11 11 Big Basket
Brooke Bond Red Label 250 gms 112 125 106 120 120 Big Basket
Nescafe Classic 50 gms 125 125 140 156 NA DMart Ready
Sub Total 999 1,013 1,083 797 1,006 Amazon Pantry
Total 4,032 3,975 4,395 4,117 3,374
Source: Company, Edelweiss Research
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Jiomart: Significant improvement in user interface
Similar to B&M retailing, Reliance’s Jiomart remains the biggest potential disruptor online too.
To recall, Jiomart is the online extension of Reliance Retail’s grocery business. The company
plans to: i) supply grocery online; and ii) act as a distributor to retail shops (kirana) in the
longer run. Reliance has already started offering online delivery in more than 200 cities and
uses WhatsApp as a platform to order along with its recently launched app. JioMart’s peak
daily orders are already higher than peers.
Jiomart app interface - Ease of use comparable to other grocery apps
Source: Company
More importantly, Jiomart has seen a significant improvement in user experience over the
last two months; its interface is now comparable to other pure-play e-commerce players.
Summary of our interface checks
Key Positives Key Negatives
Pricing is decent Depth of products much lower than peers
Delivery was hassle free No non-vegetarian items
Packaging better than other ecommerce players No option to choose delivery slot
Quality of vegetables better than other ecommerce players
Complaint resolution is via WhatsApp, very quick, effective with a lot of analytics
Source: Edelweiss Research
Jiomart was among the top three
downloaded shopping apps in August
2020 after Flipkart and Amazon
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Potential Amazon-RIL tie-up: A bigger worry for vertical F&G retailers
DMart is a single category and offline-focused (currently) retailer. Amazon and Reliance, on
the other hand, have aspirations of capturing the entire retail basket. While Amazon is an
online retailer moving offline, Reliance has a similar grand aspiration the other way round, i.e.
from offline to online.
The likelihood of a these two coming together is low prima facie considering the independent
focus on hyper local/online via Amazon Pantry, Amazon Fresh and JioMart. Amazon’s
investments in More and Future Retail fit the bill as these offline retailers wanted to use
Amazon’s network to build online strength (similar to Shoppers Stop in apparel). With JioMart
being the focus for Reliance and now with Future Retail under its belt, synergies for Reliance
look limited.
Should a marriage of convenience take place between Reliance and Amazon that is bound to
accelerate the shift online, DMart will be under tremendous pressure to ramp up its online
capabilities.
DMart is a single category retailer
Source: Edelweiss Research
DMart’s e-commerce plans needs a leg-up
DMart’s conservative approach to online does protect profitability, and management’s intent
is clear on this. At its annual meet in August 2020, DMart reiterated: i) focus on brick & mortar;
ii) grocery e-commerce focus only in large towns. In our view, in the long run, considering the
opportunity size and how the market is evolving, DMart will have to find a balance to capture
the online potential. Too conservative an approach remains a bigger risk than the RIL-Future
Retail merger in our view.
DMart Ready: Key Financials
(INR mn) FY17 FY18 FY19 FY20
Revenue 12 441 1,436 3,540
EBITDA (161) (379) (404) (405)
PBT (261) (481) (508) (800)
Source: Company, Edelweiss Research
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Company Description
DMart is an emerging national supermarket chain with focus on value retailing. The company
has been one of the largest and most profitable F&G retailers in India. It offers a wide range
of products with focus on foods, non-foods (FMCG) and general merchandise & apparel
product categories. In 2002, DMart opened its first store in Mumbai. As at June 2020, the
company had 216 stores with retail business area of ~7.9mn sq ft.
DMart operates and manages all its stores. The company operates predominantly on
ownership basis (including long-term lease arrangements, where lease period is of more than
30 years and the building is owned by DMart) instead of rental model. It opens stores using
cluster-based approach on the basis of adjacencies and focuses on efficient supply chain that
targets densely-populated residential areas with a majority of lower-middle, middle and
aspiring upper-middle class consumers. DMart’s distribution and packing centres form the
backbone of its supply chain that supports its retail store network.
Investment Theme
DMart’s core MOAT has translated not only into strong revenue growth, but also robust
profitability and return ratios. During FY12-17, DMart sustained consistent SSSG above the
20% print. However, that has come off since due to older stores maturing. The company’s
competitive prices are derived from right product assortment, lower payable days, right
location size and cluster-based store expansion, among others. Consequently, a strong SSSG
helped DMart expand gross/EBITDA margins from 14.5%/6.4% in FY13 to 15.0%/8.2% in FY19.
Key Risks
Sustenance of EDLP program and increased competition.
Purchase of real estate at favourable rates and hence the store expansion. This arrangement
entails huge initial cash outflow, which may involve taking higher debt. In the scenario where
new stores fail to pick up as anticipated, then incremental debt taken for same would need
to be serviced from cash flows of other stores, which could impact overall profitability of
business.
Revenue concentration in largely from Western India – Maharashtra and Gujarat.
Competition from e-commerce companies
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Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL <GO>, Thomson FirstCall, Reuters and Factset 13
Additional Data Management
CEO Ignatius Navil Noronha
CFO Niladri Deb
COO Udaya Bhaskar Yarlagadda
Group CFO Ramakant Baheti
Auditor S R B C & Co LLP
Holdings – Top 10* % Holding % Holding
Bright Star Inv 13.70 Vanguard Group 0.68
SBI MF 4.21 Blackrock 0.62
Axis AMC 2.76 GSAM 0.32
Capital Group 0.91 Robeco 0.27
ICICI Pru AMC 0.70 UTI AMC 0.27
*Latest public data
Recent Company Research Date Title Price Reco
13-Jul-20 Avenue Supermarts - Result Update Q1FY21; Result Update
2201 Hold
23-May-20 Avenue Supermarts - Result Update Q4FY20; Result Update
2300 Hold
12-Jan-20 Avenue Supermarts - Result Update Q3FY20; Result Update
1639 Reduce
Recent Sector Research Date Name of Co./Sector Title
24-Aug-20 Titan Company 'BRAVEHEART SERIES' Titan Company - Annu; Company Update
18-Aug-20 Titan Company 'BRAVEHEART SERIES' Titan Company - Jewe; Company Update
14-Aug-20 Shoppers Stop Shoppers Stop - Result Update Q1FY21 - L; Result Update
Rating Interpretation
Source: Bloomberg, Edelweiss research
Daily Volume
Source: Bloomberg
Rating Distribution: Edelweiss Research Coverage
Buy Hold Reduce Total
Rating Distribution* 160 64 14 238
>50bn >10bn and <50bn <10bn Total
Market Cap (INR) 175 60 12 247
* stocks under review
Rating Rationale
Rating Expected absolute returns over 12 months
Buy: >15%
Hold: >15% and <-5%
Reduce: <-5%
TP1,290
TP2,300
TP1,274
TP1,300
TP1,639
1025
1330
1635
1940
2245
2550
Sep-17 Mar-18 Sep-18 Mar-19 Sep-19 Mar-20
(IN
R)
DMART IN Equity Buy Hold Reduce0
4
8
12
16
20
Sep-17 Mar-18 Sep-18 Mar-19 Sep-19 Mar-20
(Mn
)
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