DMart operations hit by lockdown

Avenue Supermarts, which owns and operates retail chain D-mart, took a hit on its operations due to the ongoing lockdown in the country.
The D-Mart chain management has stated that operations of half of its stores are closed, following the directions issued by authorities.

The company is retailing only essential items from the operating stores and average footfall is “significantly lower than usual” due to several restriction imposed by the authorities.
Avenue Supermarts store operations depend on footfall and movement of buyers which coincides with the timing restrictions enforced by the local authorities.

The company continue to sell daily use essential items such as grocery and FMCG products from all our stores and have stopped sale of non-essential items (General Merchandise and Apparel).
D-Mart has also commenced e-commerce home delivery and bulk deliveries to large housing complexes across majority of its stores during the first week of April.

The Mumbai-based company, has presence in 206 locations through D-mart stores.
The ongoing lockdown is expected to hit Avenue Supermarts FY21 and FY22 EPS by 13.1% and 10.7% following Covid-19 impact led by closure of 50% stores during lockdown, sale of only food and grocery and balance with very low footfalls, likely impact of social distance even after lockdown gets lifted, 90% of store presence in most impacted clusters and delay in new store openings.

Avenue Supermarts’ key products/revenue segments include Income from Retailing which contributed Rs 19881.55 crore to sales value (99.82% of total sales) and Other Operating Revenue which contributed Rs 34.70 crore to sales value (0.17 per cent of total sales)for the year ending March 31, 2019.
For the quarter ended December 31, 2019, the company reported consolidated sales of Rs 6808.93 crore, up 13.66% from last quarter sales of Rs 5990.78 crore and up 24.38% from last year same quarter sales of Rs 5474.27 crore.
The company reported net profit after tax of Rs 384.01 crore in the latest quarter.

We believe that D’Mart will not be able to sell general merchandise and apparel which is 28% of sales.
Ground level channel checks indicate that supply chain disruptions in production of food and grocery, transport and labor availability will continue for some more time
We hence believe supply chain disruptions and labor availability will take time to go away post lifting of lockdown which will impact sales and profitability.

Also as 90% of D’Mart stores are in hot COVID clusters of Maharashtra (40%), Gujarat (20%), Karnataka (10%), Telangana and AP (20%), the near term impact on sales is likely to be severe. Moreover, post COVID sales will suffer due to social distancing norms in these states.

Although D’Mart is well placed to tide over the current situation due to lack of any lease rentals and its owned outlets due to own store model, no major inventory due to high inventory turns of around 14-16x and a strong balance sheet post the Rs 40bn QIP done recently, we expect that sales will still be hit by around 25 to 30% in Q1FY21 and which will impact the earnings growth negatively for FY21 to just around 10-11%
We however remain positive on the long term prospects and expect FY22 to be a strong come back year with both topline and earnings growth showing a good bounce back again

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