Avenue Super Mart [DMart] is super market chain that operates across India [ excluding few states] through 360 plus stores. This supermarket company mainly deals in food, fmcg, and apparel products.
Recently the company announced its q2 results, but many brokerages and retail investors were disappointed with the results. The net profit rose by 5.8% to Rs 659.6 crores. But this growth was below the analyst expectations. So the share price of the company is being sliding down. In the past 5 days alone the company's share declined by 10.03%.
Reason for underperformance:
The most important reason for this underperformance was, stiff competition from quick commerce [QC] companies like Instamart, Blinkit, and Zepto. When these QC companies are able to deliver grocery and other retail items within 10 to 15 minutes people prefer to buy from them.
Nuvama's view:
But Nuvama Institutional Equities noted that the average bill size and the average bills cut per store has risen slightly.
The 'average bill size' refers to the amount spent by a customer per visit. 'Bill cuts' refers to the number of calls a salesman would undertake in a given period of time. So with the increase in these metrics Nuvama is of the opinion that the average visitation has not declined, yet a part of the buying has shifted to other QC platforms.
Government might encourage stores to adopt ecommerce:
It was reported that the Government was worried about the negative impact on small stores due to the entry of QC companies. Probably the government would encourage even more companies and stores to adopt the ecommerce business model along with their physical mode of functioning. The Government will never allow a single entity to dominate the entire QC industry.
We expect that in future there could be even more QC companies in the business. So there is a room for the brick- mortar [physical] stores to have both store and also e- commerce delivery options.
Position of DMart:
Now let us look at the position of DMart in this. As of now, they mainly operate in physical locations particularly in tier 1 cities and a few in tier 2 cities. Many brokerages have downgraded the stock. Even I expect the stock to fall further in a for some period. The reason is their profits are further expected to be impacted due to other ecommerce players.
However they have more potential to grow by launching their own private labeled products and opening new stores. The heat of the competition from QC companies are felt only in metro cities as of now. Further they launched DMart Ready which is their ecommerce platform.
The company's CEO and MD has said that, DMart Ready grew by 21.8% in the first half of FY 25. This point was said by the CEO & MD of the company. DMart Ready is an ecommerce player.
But we should also note that the DMart Ready still remains work in progress.
Conclusion:
In my view, in order for the company to perform better it should focus more on DMart Ready. Only when their business adopt ecommerce to a greater extent, we could expect a momentum to the stock price. I still believe the company could perform better because of their strong brand value and market presence. But for the business of this company to change fundamentally [ it could take a time of one and half years, I guess. Until then I expect the stock to move sideways or even decline.
But if they could change their mode of operation by including both QC and physical stores then for sure they could grow better. So we should wait for one or two years before we take any investment decisions for purchasing this stock.
Technically the stock price is bit expensive. But the company's financials are fundamentally strong. The stock could correct some more.
Disclaimer:
I'm not a SEBI registered advisor. So I request the readers to consult a SEBI registered advisor or do your own research before taking any investment decisions. I just shared my views about the company, and it may go wrong or right. This is just for informational purposes only.
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