same store sale growth ~18% , is it kind of validation for situation where economic slow down brings more people to stores with more discounts & necessary items than in good times. Also when entire FMCG sector going down these guys still growing 30+% even with slow pace in new stores. Margin hit is expected with economic slowdown & competition.
Thanks,
Kumar
The business is scaling nicely. a little shy of 20,000 Crores in sales now. They keep adding 21 stores a year on an average and store sizes keep getting bigger. The reason for the 30% growth in sales, is the increase in average revenue/bill & increase in bill cuts.
On an average revenue/bill keeps increasing by roughly 5% (Rs 1158 per bill) every year and bill cuts on an average keep growing at 27% per year.
If you look at the average store size a few years ago, it was 30,000 sqft. Now store sizes are much bigger with those added in 2019 averaging 47000 sqft. If you take the 5.9 mil sqft they have and take an average store size of 30k sqft for like to like comaprison , then no of stores they would have had now is 197. So just looking at store count will not give the complete picture.
Overall, a solid stable performance.
| Item | 2015 | 2016 | 2017 | 2018 | 2019 |
|---|---|---|---|---|---|
| No of stores | 89 | 110 | 131 | 155 | 176 |
| Bill Cuts(in Cr) | 6.7 | 8.5 | 10.9 | 13.4 | 17.2 |
| Revenue (in Cr) | 6434 | 8575 | 11881 | 15009 | 19916 |
| Revenue/bill (in Rs) | 960 | 1009 | 1090 | 1120 | 1158 |
| Growth in bill cuts | 27% | 28% | 23% | 28% | |
| Growth in revenue per bill | 5% | 8% | 3% | 3% | |
| Mill Sqft | 2.7 | 3.3 | 4.1 | 4.9 | 5.9 |
| Mil sqft added | 0.6 | 0.8 | 0.8 | 1 | |
| Average Size of Stores (in Sqft) | 30337 | 30000 | 31298 | 31613 | 33523 |
| Stores added | 21 | 21 | 24 | 21 | |
| Average Size of Stores added (In Sqft) | 28571 | 38095 | 33333 | 47619 |
Best
Bheeshma
I may be stupid, but I am a buyer at these prices. It may go up or down by 20-30% from here, but there are very few things to buy in the current market , no growth scenario and highly uncertain political environment , for a person like me.
If they really do a QIP a 2.5 cr shares in order to dilute promoter stake, I think the company will have lot cheaper acces to capital as they are diluting at very high valuations. If they dilute 2.5 cr shares at 1200rs they will have 3000 crore rs, if they want to have debt of 3000cr they need to shell out neary 270 crs on interest payment which is one-fourth of the yearly profit, while equity route will decrease EPS by only 4-5%. They can use the raised money to open more stores rapidly which will act as growth driver.
Hi @KC1986
The material is there in https://www.bseindia.com/xml-data/corpfiling/AttachLive/8f244eac-66f9-43f6-bcb8-46d8a9421a1d.pdf
Its output of data extracted from investor presentation / Q4 result & expertise in MS Excel
We have passed another year with expected success & now the discussion must shift on generation of fund for further expansion using
I understand that fund raised through NCDs may help them in stopping frequent issuance of Commercial Papers. Hopefully we will save little on this as NCDs should be cheaper than Commercial Papers.
Regarding QIP, it dilutes the equity, brings down the promoter holding (Sebi is behind RKD for this). We may see approx 4% impact on EPS. The QIP issue price will be major key for price movement in near future as large investors may not like increase in share price. If QIP takes place at current rate, it may fetch around 3500 Cr, although historical QIPs show that it may settle down & could be around 3000 Cr .
I like the fund raising plans to keep the growth momentum intact for next 2-3 years.
Another vantage point to look at Dmart is to compare it with one of the most efficient & profitable brick and mortar stores in the world - Costco.
Costco is a retailer - but it doesn’t make any money on product sales. Instead it just about breaks even on merchant gross margin. This virtually guarantees the lowest price per unit for a product. It has gross merchant margin of 11% - as compared to Dmarts 15% and a miniscule <1% Net Merchandise Margin compared to Dmarts ~5%.
Costco makes all its money charging people a membership fee of 60 USD per year. That’s about Rs 4200 per year for getting the guaranteed lowest prices on products stocked at Costco. The membership money goes straight to the bottom-line. Costco has an ROE of 25% and it doesn’t make any money on selling products.
This model has enabled it to have net earnings equal to Dmarts sales. A rather extraordinary achievement in my view.
Customers at Costco get only 1 choice of the product. One choice of toothpaste, one choice of ketchup etc and these products are of the highest quality. So you get the highest quality product at the lowest prices. Guaranteed. The Kirkland Scotch is famous for being available at $38 only. Costco takes the concept of Quality of Discounts at a whole new level.
Thirdly, Bulk Packaging - only 4000 SKUs as against v/s Walmarts 1,20,0000. They sell Mayo by the gallon etc. Sometimes, these packs are customized only for Costco. Since they stock only 1 brand, they are their suppliers largest or second largest customer and they get the absolute best prices which they pass on fully to the customer. The entire system is setup to get the customer to purchase in bulk even if they dont need it.
This has resulted in a record beating revenue per sqft of $1176 or Rs 82000 per sqft. That is 2-3x of what Dmart does. By contrast Walmart is $431 or about 31k per sqft - a bit closer to Dmart.
As if that was not enough, it operates on a Negative Working Capital.
Lets say Dmart adopts the Costco model for arguments sake. It passes on its entire 15% gross margin to customers - that is an additional 15% discount on top of the existing discounts it is already giving. It already has 17.2cr bills with the exisiting system.
Assuming each customer goes there 12 times a year would mean a membership base of 1.5cr roughly or 15 million. Costco has a membership of 50 million.
And Dmart charges Rs 3000 per year (250 bucks a month) for availing the absolute lowest prices in India - guaranteed round the year. That’s 3000*1.5cr per year or 4500 crores of earnings.
At today’s Market Cap of 80,000 crore that comes to a P/E mutliple of 17.7 i.e 80kcr/4.5kcr. Just another Vantage Point for taking the discussion on valuations ahead.
Best
Bheeshma
Do you have any supporting data? I see that more than 25% of stores are in Mumbai, Pune & Bangalore. They have started expanding in North with having a store in Ghaziabad & 3 in Punjab, I feel Delhi must get covered in FY19-20.
Its quite tough & challenging in India as consumer behaviour is totally different. if I compare with Big Bazaar, which gives you 5% discount (through futurepay app) rather than flat 6% discount by Dmart… (Mentioned discounts are other than special offers on other individual selective items)… we do see the huge gap between growth in these two.
Good imagination Bheeshma. I think they can offer maximum 4-5 % to remain at break even. To charge monthly, they have to make habits of people to go to store every month in a disciplined way. For this to happen, Indian public needs to consume more I.e. to earn more. There is too much disparity in consumption habits presently so everybody may not be tempted to pay Rs 250 per month. Rs 350 per day is average wage of labourers in cities.
Hi @bheeshma
Do you not think consolidate result is not so good . Consolidated Pat Growth is 14% and Diluted EPS growth is only 12% growth . Is the impact due to DMART ready store ? There is unusual jump in other expenses
Hi @Rajesh1975 & @mrai74
Any retailing operation capable of holding it own against Amazon needs to be examined! Warehouse clubs are again an oligopolistic market with Costco, Sams Club and BJs club dominating the landscape in the US. Recently Costco overtook Amazon to claim the top spot in ASCI - American Customer Satisfaction Index - which is an achievement
https://www.theacsi.org/news-and-resources/press-releases/press-2019/press-release-retail-and-consumer-shipping-2018-2019
One of the reasons that people stay away from Dmart is valuations. So this is just a thought experiment. Its extremely farfetched for Dmart to do a Costco. They should keep doing what they are good at. However, the idea is to overlay the business model of a very successful retailer like Costco and see where that takes us. These are all just different ways to look at things and maybe we see a whole new angle from a different perspective.
Best
Bheeshma
@bheeshma , Thanks for sharing interesting analytics and knowledge on dmart and retailing . Its insightful, Where can we find more comparisons between costco and walmart ? It will interestingly help us further evaluate dmart .
@mrai74 , when would one come to know the QIP price ? would it not be priced to match market price levels ?
Many thanks
It is also true that in past year there was an exceptional gain of 20 cr else the eps growth would be 15% +…
As per SEBI rules, QIP shall be made “at a price not less than the average of the weekly high and low of the closing prices of the equity shares of the same class quoted on the stock exchange during the two weeks preceding the Relevant date”. Where relevant date is the date of the meeting in which the board of directors of the issuer (company) or the committee of directors duly authorized by the board of directors of the issuer (company) decides to open the proposed issue.
It is observed from other QIPs in past that promoters offer some discount on market price. The discount can be 5% or so. Bigger the discount, market takes it as negative sentiment.
Thanks so much @mrai74 . i guess , then it seems better for me to wait for the QIP price before making investment decision
Hi @bheeshma ji,
Very intrigued by your comparison or Dmart V/s Costco. But i did a small analysis based on the nos u shared, it seems Dmart still needs to grow a lot before it can get in money driven by memberships. Even at 100 rs/month, the value for an average buyer is not there.
Also, did u use 17.3 cr bill cuts and 19916 cr as the nos, for avg revenue/Bill, as i got avg no as 864 rs. Pls guide
| Costco V/s Dmart | ||
|---|---|---|
| Revenue/ Bill | 1158 | |
| 12 Visit/ Year | 13896 | |
| Gross Margin Discount @ 15% | (2,084.40) | |
| Net Spend/ Year/ Customer | 11811.6 | |
| Subscription @ 200/ Month | 2400 | |
| Net Savings | -315.6 | |
| Subscription @ 100/ Month | 1200 | |
| Net Savings | 884.40 |
