*Avenue Supermarts (D-Mart) Conference Call Key Takeaways*
(CMP: Rs. 2175, M.Cap: Rs. 1409.89bn, Promoter Holding: 74.99%, Pledge: 0)
(Dalal & Broacha Research)
1) *Store Network*: FY21 to remain muted due to Pandemic/*will open 59 stores (total of last 2 year openings in FY22)*
2) *Store Land Acquisitons*: remains aggressive and is largely unaffected by the pandemic/time lag from land acquisition to store construction completion is 2 years
3) *Existing v/s new geographies*: the focus will remain 80% : 20% as company has better understanding of the market, strengthens their position in the market and also margin accretive as logistics costs are lower.
4) *Ownership & Retail Model*: company is opening to leasing provided it is for 20-30 years/currently leasing space is very attractive/in terms of ownership, company buys prime land and in current situation price drop is in range of 5-10% at max
5) *Store Size*: has increased over the last 2 years as on longer term basis, store metrics (ROIC, Sales per sq.ft) are higher/average store size (sq.ft) in FY18: 31,612 ; FY19: 33,522 ; FY20: 36,448.
6) *Large store v/s smaller stores*: assortment remains similar in both but larger stores allow the company to sell more of higher margin products/incremental capex not as high as the % increase in store size
7) *Consumer trends*: Mix of shoppers have changed, now low middle class to Middle class people shopping more as compared to higher middle class and above (more scared and thus prefers E-Comm)/company well prepared for it as company does have a higher share of value products
8) *Supermarket v/s Neighbourhood stores*: in Q1FY21, due to lockdown, neighbourhood stores gained a lot of share due to lockdown related issues such as restrictions on travelling, no. of customers allowed inside store (Ques stretched as much as 2km) and introducing home deliveries.
9) *Operational Timings*: have been extended to times where possibility of crowd is not high to accommodate people who are fearing crowd e.g. at 6:00am or 11:00pm in the night wherever regulations have been relaxed
10) *Low Cost Strategy*: continues still and thus to maintain it, company does market research of stores within 1Km radius around the company store each day.
11) *Brick & Mortar(B&M) v/s E-Commerce*: company very confident on B&M model despite the sudden re-emergence of E-Commerce channel/ company model not fit to operate both models
12) *Competition from the rising E-Commerce players (including Amazon and Jio Mart):*
(a)In the game of lowering price, operator with lowest cost will survive.
(b) Brick and Mortar market opportunity is still large and do not want to lose focus (where strike rate is much higher). In-fact gave up some opportunity in home delivery (demand was 5x) as store opening increased and density of revenue in-store is higher.
(c) D-Mart ready model is built to safeguard any major change in the industry trend. Ecommerce still not profitable for D-Mart. Focus will always be grocery E-commerce, however do not want to expand at faster pace.
(d) Actual statics in D-mart ready shows pick-up is more v/s delivery for D-Mart, people are still paying for value.
13) *D-Mart ready*: currently at 220 stores in greater Mumbai (Mumbai, Thane etc)/will expand to more geographies going forward/company is bullish on this business model due to it being a convenient model for customers as a pick up point closer to home
*Presentation Key Takeaways*
1) *LFL (24 months)*: stood at 10.9% as against 17.8% in FY19
2) *Sales per sq.ft*: stood at Rs. 32,879 as against Rs.35,647/lower sales per sq.ft due to Covid impact in last 10-15 days of March 2020 and larger store size and openings
*Valuation*: at CMP, the stock is trading at 114x and 62x FY21e and FY22e EPS of Rs. 19.06 and Rs. 35.04 respectively.