Their E commerce platform is not yet fully geared up to take the work load…
DMart is more comfortable with brick and mortar platform where they have the full infrastructure everywhere…that has been their strength…and they would still continue to make profits as in the past with discounts and offers and they have their loyal customers who would keep coming to them…
But sooner or later they have to adopt door delivery service for which they are still working… Post Covid19 until a vaccination is available… Most people would prefer to buy online at least in A class / b class cities…
This is my view…I may be biased since I have a chunk of DMart stocks with me…
Disclosure: I am holding DMart bought @1600
I live in Pune and they have been delivering direct to home. During the 1st month of lock down there were a lot of logistics issue, I myself ordered twice but got a call after 2-3 days saying the order has been cancelled as they haven’t got permission from police to deliver. But since last 1 month the deliveries have been flawless. They deliver the very next day and with all the items/replacements.
As discussed in previous posts, company has already said that this is a temporary phenomena until things settle. But i do see it as a good model for D-mart as well which may continue as things might take time to normalize. They are offering better discounts than grofers,bigbasket etc. which actually makes them advantageous in comparison to other players. Let’s see how it pans out but as of today their home-delivery might form a minuscule part of revenues as declared by them a month back.
Recently I was going through nse indices website. In the Nifty Next 50 index DMART is the 1st stock. (51 st in Nifty 100). It is the first candidate to go into nifty 50. It only needs to get included in the F&O list. One could expect massive inflows.
Massive Inflows + Small free float = MAGIC
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Dmart near my place got sealed once again in span of 3 months. This time there are almost 8 to 10 staff are infected (an possibly many customers). These events will shatter customer confidence and they won’t return to crowded places like Dmart. As investor I am not sure how much they would be able to recover in sales till permanent cure is in place
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May I know the city that you are talking about? In Bangalore I am surprised at the number of people flocking to physical stores to buy grocery which is easily available online and these are people driving cars and hence my assumption that they are aware of digital options.
Very weak Q1 results by Dmart for Q1FY21.
Revenue Lower by 33.7%
EBIDTA lower by 81.7%
PAT decline of 85.2%
For those who are well versed with the company, for someone looking to add Dmart to a long term portfolio, would this lead to a correction in the stock due to the high PE the firm commands+a business model which will continue to be highly impacted by Covid? or is all this already factored in the price already?
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Key Business updates:
- 2 Stores were added in the Q1FY21. As of June 30, 2020 the Company had 216 stores with Retail Business Area of 8.0million sq.ft.
- Unlike developed countries where organized retailers had a surge of customers walking into their stores, it has not happened with the same intensity at our stores.
There is also a sales channel of traditional trade which is smart, agile and resourceful. India still has a strong and resilient network of small shops and neighbourhood stores. They came roaring back after the first 2 or 3 weeks of lockdown serving the needs of an anxious customer the way the customer wanted it - quickly over the counter or through home deliveries. Value wasn’t top of mind for shoppers during this time - We are in the midst of the second wave of the pandemic and business outlook may
continue to seem uncertain, we are less anxious than we were in the beginning of April 2020. - DMart Ready sales in Mumbai have grown very well. We are making all attempts to scale it up in a meaningful manner. We started Home Deliveries (using DMart Ready App) through our stores across the rest of the cities, but discontinued it once the stringent lockdowns were withdrawn and our stores were allowed to open for business.
- Wherever stores were allowed to operate unhindered, we recovered to 80% or more of pre-Covid sales in most stores. Discretionary consumption continues to be under pressure, especially in the Non-FMCG categories. This is impacting gross margins negatively.
- Store operations and duration of operation per day continues to remain inconsistent across cities due to strict lockdowns enforced by local authorities from time to time. In certain cities authorities are once again insisting on selling only essential products. Hence our future revenues continue to remain uncertain.
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Q1 results were expected to be washed out and same is expected from other businesses as well. More bigger concern is management comment on future. During last result they had indicated downfall in April sales & first half of May (shared numbers as well). I don’t see any guidance now. Just a comment that future earnings are uncertain doesn’t provide desired comfort.
This was one of the stocks which didn’t fall alongwith broader indices (luckily it was in T2T as well, which helped a bit) and we saw similar reaction when markets zoomed back almost 45% (from 7500 to 10800). Now we have a typical situation where numbers don’t support valuations… next quarter doesn’t provide brighter vision (considering lockdown extensions & sharp increase in covid infections).
Management has expressed concern from local kirana shops as well where they say that these shops were preferred by individuals during covid restrictions… earlier they used to say that local kirana shops will coexist as opportunity size is huge. I know that the impact is very short term due to covid & we must see the bigger picture post covid.
Let us see how Mr Market reacts to Q1 numbers & Q2 guidelines
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What is typical of this company is that it knows local kirana and home delivery is the way to sustainability in this tough time but still instead of making their dmart ready app and home delivery system stronger they stopped it all together. Agree they want to focus and play on their existing strengths but is this not a time to build on new strengths like all major businesses doing? Should I see it as an unwanted rigidity in business and management or a strong focus who knows what they are doing?
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They seem to have missed the boat on online delivery. In that, they have intense competition from Amazon and Big Basket.
In my opinion the quality of DMART stated in key updates,
Being in the essential products business helped us in providing shoppers
their basic needs, pay our employees their wages and our suppliers and other service providers their dues just like before.
After the passage of three months we can say with further certainty that our business model of store ownership, steady incremental store additions over time and strong focus on cost efficiency during usual times has allowed the business to face the pandemic shocks with relatively less harm.
Online Sales – DMart Ready sales in Mumbai have grown very well. We are making all attempts to scale it up in a meaningful manner. We started Home Deliveries (using DMart Ready App) through our stores across the rest of the cities, but discontinued it once the stringent lock downs were withdrawn and our stores were allowed to open for business.
Wherever stores were allowed to operate unhindered, we recovered to 80% or more of pre-Covid sales in most stores.
Conclusion:
Still profit making, No. of stores increasing and best in offline retail & trying to scale up online channel. Unlike Amazon and Big basket huge loss making companies with fixing the business models in India.
Uncertainty in COVID times is evident for all the business and Home delivery will be expensive for all online channels & retailers, and very less for the Kirana stores.
Disclosure: Invested and biased
Thanks,
Kumar
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Unlike others dmart is treating online delivery, app etc with very short sighted and short term outlook and not as a futuristic significant business vertical. At least by closing this service as soon as stores were allowed to open, they gave this strong message to both shareholders and consumers. I was disappointed as a consumer. Having said that, they want to keep playing the game in their home turf where they have strength as a cheap and good quality player. Point is, home turf may not remain in comfortable condition for longer…what should a business do in this case… remain rigid or flexible and agile and accept you cannot win every time by playing the same game as all tournaments shall not be on home grounds…
Although, it’s not too late for this change and I am sure consumers would welcome a dmart happy to deliver not out of compulsion but out of their own desire to excel in that vertical in times to come…
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In fact I was very happy to see that in a city like Pune, during April 2020 they started “DMart Ready” App and “DMart on wheels” when the customers needed very badly. We had booked their “DMart in wheels” and in a housing complex where 400 people live, in 5-6 hours , the entire truck load material was emptied and they earned Rs 10 lakh Rupees…
I also booked 3-4 times DMart ready and was too happy to get the groceries delivered at my door step…
I thought they are very fast to change their business model and the same day I bought DMart stock at a high price…
I started selling the stock gradually in June when I got a SMS that they are stopping “DMart ready” and “DMart on wheels” and they would welcome me in their stores.
If the management thinks that they would enjoy the customers overcrowded in their small and confined stores as before , it is only a shortsightedness.
Today, thanks to the digital media / TV/smart phone , 138 millions indians are well aware of social distancing … They are aware of the consequences of overcrowding…now they also know what happened after relaxation of lockdown? …
I was wondering why the DMart was not quick in adopting to the new normal…what a big deal… with India having adequate expertise in developing ecommerce platforms very fast…
Now there would be two classes of people : one class of people tech savvy would use smart phone Apps to buy from platforms like Amazon, Bigbasket, Groffers… I find Reliance apps also ready …Reliance also has a tie up with Netmed- to distribute it’s essentials …vegetables , grocery…
And the other class of people will prefer to go to local kirana shops which are not crowded… Moreover all local kirana shops dood deliver…
Discl: Invested, but pruned…
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I think we need to look into the thought process of Dmart . Re-posting short snippet from Dmart CEO Interview about ecoomerce and disruption :-
“E-commerce turns out to be more expensive. But this is only in food / grocery. When you talk about cell phones, it is reverse, you talk about books, it is again reverse. And that is what you are seeing, money is like water, where arbitrage is, it flows there. That’s how you see a significant disruption in sub-sectors. Like in electronics, in mobile phone many things have happened. So, wherever that arbitrage tilts, the business will tilt towards that area. So, fortunately because we are in the grocery business we believe the arbitrage is better for brick-&-mortar.
But I am not saying online will not or may not disrupt us, it can disrupt us. But the relative disruption is the lowest in food and grocery (F&G),which is a global phenomenon, you see across the globe, F&G is least affected by online. So, that’s the only data point I will give you. And with F&G, it generally affects those people who have high gross margin, high overheads while we are low gross margin, low overheads.”
Key takeaways:-
1.Ecommerce can sell product like electronic gadget ,books etc at lower rate than brick & motors.
2.Ecommerce is expensive for food/grocery items . Labor cost + shipping charges adds additional cost. and that makes it less efficient.
We have so far data for last 2-3 yrs in India and what we have observed from it is no player in eCommerce grocery space has been profitable and being low cost player at the same time in India.
Discl: Invested ,Long term bet.I may change my mind if facts change .
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Agree … But cost cannot be only deciding factor in long run for aspirational middle class what is the moat here? COVID has highlighted the same… Business should have multiple strategies and cannot depend on only one factor for success… Circumstance can change the mindset hence the cosumer behavior. E.g. Dmart do not sell vegetables (May be it is has less shelf life or profit margin etc) , Now consumer cannot stand in Dmart store for groceries and go in local crowded market for vegetables… So integrated players like Star, Big bazaar will have there own advantage and customer base.
Management mindset should be agile and it is yet to be demonstrated by Dmart. Also I feel there is reluctance so far to adapt or think otherwise on established game plan. Only time will tell the impact of the same
I hope low cost player tag of Dmart should not turn out as low spending capacity consumer.
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What the DMart management said may be correct in a normal situation.
But it may be incorrect to think in a situation Post Covid19.
(1) Vaccination situation is not very certain , though a lot of nations are working- let us remember we still don’t have a vaccination after 50 years of discovery of HIV virus…
(2) Even if there is a vaccination for Covid19 , nobody knows how long the Antibodies will stay in the body.
Is it 3 months…6 months …1 year… ?
(3) And still after vaccination, people would still carry fear and most people would continue to take all possible precautions learnt/ practised during Covid19… hand hygiene, social distancing, avoid crowded places especially if thre are other alternatives like Online purchase, local kirana stores that are not crowded …
Moreover, if people have to visit a brick and mortar store … they have to either travel by a crowded public transport, or hire a Pvt vehicle or use own conveyance which again costs money and time for him and risk of transmission of viral disease/ virus if travelled by public transport or hired vehicle like a ola or uber car or auto rickshaw…
Virus is here to stay…even before Covid19, we had all kind of un-named virus transmission taking place from human-human … and we used to have viral infection …we called it as Cold, flu, influenza…but now with Covid19 experience , we have realised how serious a virus could be and how important it is to take all possible precautions!
I don’t mind paying a little higher price through buying on line stores (which in any case I would saved by avoiding my travel to brick and mortar stores) or order on my friendly neighbourhood kirana sores And in the process I save my time , save fuel , reduce vehicular pollution…
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I agree if COVID 19 issue persist then it is a very bad strategy to go with brick & motor models. But again we should not forget the way Dmart scaled in crisis time like march -april. So there is no doubt about their capability of handling it be it Dmart or Dmart Ready they can change gear if situation become that bad due to COVID19 as you and many others are thinking .But we should also analyze how is the COVID19 in countries where it become worse in the month of Mar-April 2020 and how is the current situation there.
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The day Dmart Ready becomes profitable ,we will see Dmart scaling this model agressively .Dmart is trying to figure out the way to deliver competitive pricing to customer by being profitable At the same time they want to remain in the game of ecommerce and not repeat kodak kinda mistake , so Dmart Ready experiment is going on . Only one line fits for RKD. “chite ki chaal baaz ki nahar aur damani ke vision…”
Discl: Invested. so view may be biased.So be rational & think independently.
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The stock does not deserve such a high P/E, when the management is so rigid about opening up multiple channels…it requires agility and dynamism to adopt to changing situations…
The items that DMart was selling was required by its customers during lockdown…if customers were not able to come to your stores, you should have gone all out to reach out to your customers and sell them… though you tried , but gave up…but customer demand existed … You could not tap the business…customers bought those items from local kirana , Amazon pantry, Big basket, Groffers…
HUL, Nestle , Tata consumer, GDPL, Marico, Britannia …all products were available on line and at local kirana shops… all door delivered…
Covid19 not only taught us as to how to remain healthy , but also the benefits of Digital economy…on line contactless digital transactions and online purchase is here to stay…it is productive , it is economical , saves your time, your money, saves fuel, minimises air pollution and reduces Global warming…
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