On a slightly different note - Is D-Mart following social distancing protocols? I hope they are.
I have visited dmart near my home in Pune a few times in the last 15 days and on the day of PM lockdown announcement. Before entering you are thermal screened and they allow you only in batches once some of the earlier lot exits the store.
I have not found a stock out situation in dmart so far. Whatever i want i get in whatever quantities required. They have also not stopped the discounts which remain. All the bogos that previously existed in groceries are still there. There is no skimping on the discounts. I feel it’s a pretty safe place to go and buy groceries in case of emergency due to all the precautions they are taking. Big fan of dmart for sure.
10 Likes
Also Their billing is very simple to check. First all the items of different GST rates segregated at the time of printout and one item is printed in one line. But in Reliance mart, it is messy. One single item has 2 -3 lines and the bill is so long. It is every difficult to check the rate of particular item. Also I found that in Reliance many times the discount mentioned in the counter is not reflected in the bill and when pointed out the same, the sales person goes to that counter and removes the slip. But In DMART I am yet to find such problems. From last 2 years, I have not been going to any other store but DMART.
So, bheeshma ji, I am a bigger fan of DMART than you 
9 Likes
Like everyone else Dmart too has scaled down operations during this crises. There will certainly be an impact on sales growth and margins. Valuations aside - it’s a strong business and will recover quickly when this is all over. The only dampener is valuations so prefer to stay away and admire it from far and ofc shop there
3 Likes
Yes. It’s a great service. I stay in Tier III city with population of 3 lakhs. Here also they gave the delivery the second day. Of course, few items were out of stock at the time of delivery.
I placed all the orders on the APP . They charge delivery charges and the amount should be minimum Rs. 1000.
Just to let you guys know.
5 Likes
Short term view
- Sales impact in March due to 50% store closure, selling low margin essentials only - social distancing and sensitization etc we maintained
- Likely delays in new store openings
- SSG to take a beating for 1-2 qtrs
long term view
- Way better Ops efficiency in tough times compared to competition (Bigbazaar/Hypercity etc) -
- Some competition is likely to give grounds for others to gain (Future group etc) - Dmart to benefit.
- Gained customer mind share - long lasting brand building(at no cost)
- Employee and supplier loyalty gain with measure taken to strengthen eco system
PS: Core holdings - will look to add more on dips
7 Likes
I am looking to calculate the Debt-to-FCF ratio for DMart based on it’s Annual Report 2019 (p148 for Consolidated Balance Sheet). I just want to quickly check if my calculations make sense.
Debt = Non-Current Liabilities Borrowings + Current Liabilities Borrowings = 125.67+ 304.15 = 429.82
FCF = Net Cash Flow from Operative Activities + Cash Flow from Purchase of Assets = 806.84 - (-1,416.80) = -609.96
Debt-to-FCF ratio = - 0.7
Are my calculations correct or am I missing something?
A rough calculation shows that there topline is getting hit of 70cr per day. which may have visible impact on bottom line and OPM as well. As new stores addition is also halted… next 2-3 quarters may see muted growth on this account as well
Business update:
Nearly 50% of our stores remain closed for operations based on directive by the local
authorities
o Footfall at stores that are open, depends on movement and timing restrictions
enforced by the local authorities. Overall, they are significantly lower than usual
footfalls
We 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).
We have just commenced E-Commerce Home Delivery and Bulk Deliveries to large
housing complexes across majority of our stores during the first week of April
o Customers who have used the service have deeply appreciated these initiatives,
however the sales from these channels are inconsequential.
o E-Commerce and bulk deliveries to societies are initiatives implemented to only
manage the current lockdown situation
I am suspicious whether this COVID 19 will do some structural changes in DMART story (offline store) . Post lifting of lock down , whether same footfall will occur in dmart store which used to happen earlier ? It used to be more dense in nature than other offline store which helped dmart to reduce the cost/customer .
Until unless the same footfall occurs , it will be hard for dmart to keep the cost down . Need to see how peoples are comfortable to gather as crowd post lock down . IMHO , Vaccine or negligible new cases across country can only remove the fear out of people’s mind .
4 Likes
As per latest research report by MotilalOswal
Non-discretionary business to reflect limited revenue impact
DMart has announced that 50% of its outlets have been shut due to the COVID- 19 lockdown. Also, currently it is only selling essentials, which constitutes 70% of its revenues; the balance 30% revenues come from non-essential product sales, which remain inoperable. Accordingly, DMART should see 65-70% impact on its monthly revenue during the shutdown. Further, once the lockdown is lifted, the non-essential 30% product sales (which also include 10% apparel sales) may take some time to recover, as these are part of semi- discretionary products. The pace of store addition is also estimated to reduce from 28 to ~10 in FY21E.
1 Like
Motilal oswal is giving sell call for last two years, contrary to that their three fund holding significant amount of DMart including Index fund
12 Likes
Its because these holding maybe outdated. Please check the dates in the snapshots.
So maybe by this time , they may have reduced their stake in Avenue Supermart.
Best way is to check the MF fact-sheet.
My thinking
Vikas
The snapshot is as per latest fact sheet available on their website, you can check here
https://www.motilaloswalmf.com/downloads/mutual-fund/Factsheet
1 Like
Please check the details. The date of publication is 19 March 2020, which shows holding till Feb end. So to know March end holding , we have to wait for factsheet to be published in April 2020.
Please correct me if I am wrong.
Vikas
I am trying to explain why the valuation of DMart is so high in a different way.
As of Today P/E of Avenue Supermart is = 117.32
That means we are paying a price of 117.32 times, wrt trailing 12 months earnings, which is very high.
Again the high valuation of this stock is justified if the company remains capable of maintaining a growth rate at 15-20% for the next 15-20 years.
Therefore, I am trying to throw some light on why it is possible:-
As per the current data:
Compounded Sales Growth 5 Years: 33.68%
Profit growth 5Years: 40.91 %
Average ROCE 7Years: 23.06 %
OPM 8 Years avg : 7.5 %
Let assume there would not be any significant changes in OPM in the next 15-20 years. So that means if the sales of the company increase at 15-20%, earning of the company will also be increased at 15-20%.
The probability of happening the same is very favorable because the retailer will be adding new stores every quarter.
No of store growth in last 10 years :
From Annual Report 2019:
As per CEO Ignatius Navil Noronha, we ended the year with 176 stores, adding 21 new stores. We could have done better. While all operating metrics were good, I am personally disappointed with our store opening outcomes.
So it is believed that for next few years number of new store growth is expected to be between 25 and 30.
Another reason for Sales and Earning growth will be :-
As new store addition increases the Business Area per Sq. Ft., increasing revenue per sq. ft increases the revenue substantially.
Mathematically, 25 is 12.7% of 196 and 30 is 15.3% of 196. So basically, apart from increasing Same Store Sales Growth, from the new store, sales will be growing at additional 12-16% each year which is very promising.
Will the share price sustain?
As per the current data, company is doubling its earning in every 3 years.
That means the stock price goes nowhere for next 3 years P/E ratio will be 58.66 and in next 6 years it will be 29.33.
A debt-free company growing 25% each year with 29 P/E is no doubt a promising story. I am just trying to envision the worst case possible.
Also, the company is increasing its free cash-flow every year which helps the valuation to be sustainable.
Risk
Opening of new stores near an existing store (cannibalisation), increase in number of matured stores, deflation in staple prices and high base impact are the key reasons for moderation of SSSG. The management highlighted that new stores deliver a healthy SSSG, whereas matured stores grow closer to the inflation rate. Going forward, as the number of matured store increases, the management expects SSSG to further moderate to a certain extent.
Current Crisis may become an opportunity in disguise:-
D-Mart typically prefers to buy land and then construct the buildings. Due to this pandemic the price of real estate will be reduced which helps DMart to add new store at cheaper price.
Not invested.
6 Likes
Dmart operates in multiple cities. What makes you reach this figure in real estate correction?
50-% stores are closed. Merchandise are not sold as per lockdown law. Garments have to be sold at loss to free cash. Social distancing will cause loss for long time as DMart is the business of operational efficiency. They can not deliver high sales in this situation.