Dmart is volume power and monopoly in operating area. With gross margin erosion but net margin expansion , there is a winner on both sides of the transaction. You are playing with lot many levers here to propel growth, but most important as you said is store expansion. The floor space expansion is the thing to look at though, due to very high returns per sq foot. It’s hard to predict right now when the growth levers will be turned full throttle and peaked, also what’s the peak going to be like is something no one knows. So I stay put to let that play out for some more time.
Dmart pays its suppliers in 8.4 days on an average and not 15-20 days.
2 Likes
Please can someone help to know/track the new stores opening for DMart. I am trying to find out how many new stores are opened in 2Q. Tried to find it out from their website but could not find that.
1 Like
Discount with Volumes work well for DMart but that is hardly a MOAT.
And speaking of volumes, why don’t other Supermarket chains like MORE have that, and why are they unable to replicate these margins that DMART enjoys? Having wholly owned stores doesn’t seem impossible to replicate… Whats really the secret sauce?
2 Likes
Secret sauce to me is relentless execution profitably.Anyone can have Grand Strategy but without say/do ratio nothing works
As a consumer of Dmart, I know there prices and quality (having tried wholesaler’s as well) are best in majority of daily items like ketchup,dal, rice, oil etc plus own private brand premia for poha, rava, groundnut etc but not so in Diapers, apparel’s and its inherent cross selling as a basket for customer purchase that helps in improving margins
I have used big basket/amazon as well but somehow online works only for repeat set of items but you miss something always which is always an add on in store based on visibility and kid and wife discretions as well and your total amount spent is always more
2 Likes
Nothing in this world is impossible to replicate. Brands, knowledge, continuously innovating products are all duplicated. Most products of HUL are replicated. In fact every industry has a few dominant players. Even those we think have strong moat like HUL and Britannia have others closing on in their heels.
The point is if there are 10 challengers how many will succeed? There is something called virtuous cycle for any business. In case of DMART I think they have entered the virtuous cycle. Higher Efficiency will result in more efficiency. It is easy to repeat success across stores. Also the kind of rates they get from suppliers will be better than what their competitors get. Then they can give better pricing and so on.
Very high operational efficiency in a low margin industry is a moat in itself. If a new player misses their cost by 4-5% either because of higher input cost (higher supplier cost, higher employee churn), higher operational cost or any other factor can render them extremely vulnerable and a few quarters can put the business in a vicious cycle. I do not know if DMart will necessarily win, but they are showing a few signs of becoming a very good business.
2 Likes
That’s the exact definition of a moat. Purchasing groceries and household items is a commoditized service. In a commodity business, being the lowest cost service provider is the only way to stay at the top. As DMart scales more, the moat will only get wider. Look at what happened to WalMart.
Location strategy could be another type of competitive advantage, although at a much lower level than the cost advantage.
5 Likes
Hi
Nicely put. This reminds me of Amazon’s flywheel. I think a decade or two ago similar questions could have been asked of Amazon’s ‘moat’.
Rgds
2 Likes
On the surface the moat appears weak (to me). “Wholly owned stores and deals with manufacturers due to volume play”. That is what I meant. It is unlike a patent or a true technological advantage or a new breakthrough that cannot be adopted by others.
But Damani reputation and company performance has been faultless till now. And the stock price has outperformed company performance 
The CEO had announced that they’re planning to switch from a ‘Own and operate’ to a ‘Lease and operate’ business model. While I reckon that’s going to take a bit on the Return Ratios, it will make them more nimble and enable them to open many stores at a moment’s notice (For example, look at what the Discount Chain Five Below did in the US during the past 2-3 years).
Can you give examples of de-rating and How do you conclude they are de-rated?
Well as far as I remember that the CEO says they have a target to open 30 store every year with ownership model and this will continue but in those cluster where D-Mart was not present yet they might go for a leasing basis if this helps them to accelerate growth. Also the leasing is the reason for not getting the right property due to ownership model as he mentioned. So if they go for leasing even though it will impact margin but the growth will be high as well as give the company to save the cost upfront which will indeed help them to cater enormous under penetrated retail industry.
Yes, precisely what I intended to imply. The CEO has expressed that they’d like to grow at 15-20 stores a year, from the current 10-11 stores a year pace. Such a drastic jump definitely requires them to either take on debt or switch to a leasing model for some of their new outlets.
In the last Fiscal year ended they have opened 25 stores so reaching to 30 is not a difficult task to get. Moreover as I already mentioned this retail sector in India is highly under penetrated sector so the opportunity size is very big. Even though there are stiff competition coming from online grocery segment but online delivery for grocery demand a high % of the cost for online retailer specially when the ticket size is less so sustainability of those online retailer is very much questionable.
Having said the there is absolutely no doubt about the business or the growth opportunity my concern still remain on the valuation of it as I still don’t know how should we actually value this company? What PE we should give to it? May be some senior person can help. This is a high quality business in growing industry which is having a tailwind so tough for me to estimate the valuation using some normal DCF.
1 Like
I may not be exactly right, but this was possible due to the IPO. I’m pretty sure one of the reasons they even went for an IPO was to utilize the money for store growth. Can they grow stores at the same pace using only internal funding? I highly doubt it. If they can, that would be extraordinary.
I’m not going to start another conversation on this one again. But like most of us, valuations remains my sole concern in Avenue Supermarts.
1 Like
Much has been talked about the Valuation in this thread, in case you have not read all the comments in this thread, do it, you may not come to a conclusion but you will definitely get the picture.
1 Like
The lesson I learnt by switching from page to other companies when page was ~13K (after coming down from 16K) is that it is better to keep ‘overvalued’ high quality businesses than fishing for ‘undervalued’ businesses. page looked expensive at that time and has become more expensive since then!
My view is that until the growth momentum continues market will continue to give the super premium. There are very few businesses that can grow at 25%+ for a very long time to come.
Disc - invested.
7 Likes
you could go to
http://www.dmartindia.com/feedback and click on customers. The dropdowns give data on the store count but there is some manual work involved.
This is the count as on today from it, dont know whether its updated or not.
| AP | 10 |
|---|---|
| Hyderabad | 19 |
| Chattisgarh | 3 |
| MP | 6 |
| D&D | 1 |
| Guj | 30 |
| Karn | 13 |
| Mah | 64 |
| Amritsar | 1 |
| Jalandhar | 1 |
| Mohali | 1 |
| Ajmer | 1 |
| Bjilwara | 1 |
| Jaipur | 3 |
| TN | 3 |
| Ghaziabad | 1 |
| TOTAL | 158 |
Best
Bheeshma
6 Likes
But if the past growth cannot be repeated in the future and we have overpaid, whatever may be the plans of the management, if the growth is subdued, despite some earnings wouldn’t the price remain constant for some years?
Yes, there is risk of time correction where price may wait for earnings to catch up.
There are two main reasons why growth would slow down -
- Demand issues - I don’t think they will have a demand issue in the near future. There is a long runway for organized retail.
- Competition - which other retail chain is able to offer the kind of value to customers? when I go to d-mart in Bangalore (which is typically in the weekend), there is often a queue even before the store opens.
This is not to say there could never be a black swan event or a jio moment due to which their business could be severely impacted. but investing is about of probabilities and right now the way I see probability is stacked in d-mart’s favor.
2 Likes