Avenue Supermarts Aug-24

• Avenue Supermarts Limited held an Investor/Analyst Conference Call on July 30, 2024.
• The call was hosted by Rushabh Ghiya.
• Participants included National Stock Exchange of India Ltd. Corporate Communications Department, and BSE Limited Corporate Services Department

Key People on the Call:

• Neville Noronha, Managing Director and CEO of Avenue Supermarts Limited.
• Ramakant Baheti, Group CFO of Avenue Supermarts Limited.
• Niladri Deb, CFO of Avenue Supermarts Limited.
• Vikram Dasu, CEO of Avenue E-commerce Limited.
• Rushabh Ghiya, Investor Relations, Avenue Supermarts Limited.

Business Overview:

• The key product categories are generally the same as previous years
• The previous year was a period of consolidation
• Concerns around general merchandise and apparel have decreased
• A smart product recovery in the second half of the last year was observed, although numbers have not yet fully reflected this
• GMA (Gross Merchandise) has decreased from 23.04% to 22.37% in the first quarter, but is expected to recover.
• The company does not expect to return to 28% or 27% GMA, with a broad trend line around 23%.

Expansion Strategy:

• The company continues to focus on cluster-based expansion, opening stores in existing markets.
• The company also remain open to entering new states, regions, and cities
• Given the choice, deploying capital in existing markets is preferred.
• 41 stores were opened in the past year.
• The new stores are performing well.

DMart Ready (E-commerce):

• The current year focuses on consolidating and testing previous actions
• A conscious decision was made for DMart Ready business growth to be slower
• The focus is on fixing the model, ensuring correctness and achieving high throughputs in existing cities.

Store Additions:

• 41 stores were opened in the past year.
• The company aims to maintain similar store opening numbers in the future.
• No forward-looking statements are given regarding exact store numbers.
• The company aims to open equal to or more stores, but numbers depend on store opening factors.

Financial Performance:

• 30.3 crores bill were cut in the past year.
• Like-for-like growth was 9.9% for stores open more than 24 months.
• Total retail space reached 15.1 million square feet at the end of fiscal '24.
• 1.8 million square feet of new retail space was opened in the current year.
• Revenue from sales per square foot was INR 33,000 in FY '24, close to FY '20 (INR 32,879).
• Revenue from operations totaled INR 49,533 crores in stand-alone business.
• EBITDA margin reported as 8.3%, amounting to INR 4,100 crores.
• PAT (Profit After Tax) reached 5.4%, or INR 2,695 crores.
• Net cash flow from operations reached INR 3,343 crores.
• Inventory days came to about 29, and payables to 7.1 days, similar to pre-COVID levels.
• Equity is about INR 19,281 crores..
• Fixed assets turnover ratio was about 3.6 and inventory turnover ratio of about 14.6
• ROCE (Return on Capital Employed) was 19.1%, marginally lower than FY '23s
• Return on net worth was about 15.1%.
• Sales grew by 18.4%.
• There was a gross margin reduction of about 37 bps
• A PBT (Profit Before Tax) reduction of 43 bps was seen, mainly from gross margin slides
• Consol sales improved by 18.6% or INR 50,789 crores and PAT delivery of 6.6% growth.
• Avenue E-commerce sales rose by 31.7%, close to INR 2,900 crores with a loss of INR 185 crores
• Avenue Food Plaza sales came to INR 177 crores with a loss close to INR 6 crores.
• Align Retail Trade sales rose by 44% to INR 2,800 crores of sales
• Align Retail Trade generated a PAT of INR 33 crores

Q&A Highlights:

• Food segment gained as a percentage of total mix due to food inflation i.e agriculture
• Previous year apparel has recovered due to smart leadership and team
• FMCG (Fast moving consumer goods) companies in the HPC (Home and personal care) space will likely take a hike in FY25
• DMart Ready model is robust and the company is seeking to get more and more revenue from larger cities.
• There is emergence between DMart's model, ability to deliver, and market expectations
• Tier 3 cities might be deprioritized for DMart Ready, while smaller towns still have a desire for brick-and-mortar stores
• Over the next 2-3 years, average stores opened should go to 60 to 70 per year
• The opening of 40-50 stores every year is ready and deliverable, subject to local permissions
• Impact of quick commerce in major cities is not really related store operations
• Roadside sellers need stop selling fruits, and vegetables for brick-and-mortar to profit from fresh produce sales
• DMart has already reached 70-80% on our journey in apparel.
• Apparel is very talent driven and individual driven
• Focus is on basic clothing that is fashionable
• Salience is not expected to move back to the 26-28% levels for GM and apparel.
• Secular trend to focus on more food, FMCG and groceries where is lower margin will increase as stores mature
• Increasing the number of larger stores is very important
• Any store that can generate 20 crores a month will be fine, and more stores will open
• All comments for the present year, and are subject to change
• Private labels will play out more when India is at a USD7,000 - USD8,000K capita income.
• The company wants to pass profits to the consumer and provide value.
• The company is thinking about how we want the business to be 10 years from now and who we need to have

Store Additions Strategy:

• DMart has projected 40-45 stores for the year.
• DMart's capability as of last year was we can even open 60 stores per annum
• One must buy out the land, and this is substantial investment..
• 40-45% of deliveries happen within 12 hours
• 86% of deliveries happen within 24 hours
• The sales of blindfolded stores are telling me that I am selling too much on the wrong brand
• Dmart is value and a little uncomfy as opposed to Quick Commerce (QC)
• Dmart feels the the need to create and play on value from Digital Space
• Lots of data from DMart ready is used used to improve input and internal metrics
• There too little else that can do with data beyond making sure that what we are spending is useful.

Future Outlook and Guidance:

• Some improvements will be reflected in the P&L of the organization.
• As a goal for the business, DMart wants to be between 14% and 15.5% gross margin.
• It's exactly the opposite of what we used to say earlier because the numbers prove e-commerce
• Now its better in Home delivery, Whatever in the past is getting better and better
• DMart Ready stores will have to be relooked so that they can come to reality.
• Customers who use the Dmart service 2 to 3 time stick becuase the people groove with the business

Additional Points:

• Increasing opportunity will increase definitely, the more new stores open
• The company has moved to 40 to 60 from 10 to 15 over the past 7 to 8 years
• The way to tell is to base decisions to invest on the business quality's PKD, as shelf number over time
• Distribution centers have increased 48 to 62 but are not predictors of new locations

Q&A from Call participants

• Capital commitments, INR2,100 crores versus INR3,600 crores Y-o-Y
• Capital commitment is a fair indication over budget costs that will be created over 2 to 3 years
• Home delivery share used to be 50%, whatever in the past is getting better
• Want to maintain margin and efficiencies will pass down to customer to be most competitive.
• Value is a much bigger part of the the market compared to convenience
• 200 sq ft is not good enough for a dark store.
• Dmart wants to be thought of that's separate from its brick and mortar set up
• The company wants the digital name to be worth something and have value
• Baskets have been maintained and is a continuous process. Team is catching trend.
• Footfall goes up the more sales go up in stores -Minimax cannot be easily put with digital commerce at 200 sq ft
• The value of Private label stands out at 30 percent.
• The company tries try not to put energy into what cannot turn into an EBITDA or PBT target There were 2 people involved with with the call from Centrum Broking, Prabhudas Lilladher Private Limited, and Sunidhi Securities & Finance Limited.