Despite Real Estate Concerns, Avenue Supermarts Aims for North India Expansion

Hypermarket chain Avenue Supermarts is eyeing expansion in North India, a new geographical focus area. However, the company faces challenges due to expensive real estate. It has successfully opened 330 stores in the country so far. The company is also dealing with external competition in the general merchandise and apparel segment. D-Mart will focus on scaling up in existing cities, the company remains confident in its efficient operation. 

Avenue Supermarts Eyes North India Expansion Despite Real Estate Concerns

What is Avenue Supermarts' plan?

Avenue Supermarts, the operator of the D-Mart hypermarket chain, aims to expand its presence in North India. Currently, the company has 330 stores across the country,  The new store is located in the city of Ahmedabad, Gujarat. This is the company's 10th store in Gujarat, and it brings the total number of DMart stores in India to 330 but it seeks to establish a stronger foothold in the Northern region, marking a strategic shift in its geographical focus.

Why is North India expansion a challenge?

The company faces a significant obstacle in the form of expensive real estate in North India. Acquiring suitable properties for new stores can be costly, and the property market's high prices have emerged as a key concern for Avenue Supermarts in pursuing expansion in this region. Additionally, certain cities in North India, such as Mumbai and Delhi, have strict regulations on retail space, making it more challenging for D-Mart to open new stores.

How is Avenue Supermarts dealing with external competition?

Apart from real estate concerns, Avenue Supermarts is also facing competition in the general merchandise and apparel segment. Value fashion retailers have been setting up shop near D-Mart stores, posing a challenge for the company. In response, Avenue Supermarts is focusing on recruiting top talent and refining its product assortment to address this competition effectively.

What is the company's approach to online grocery expansion?

Though Avenue Supermarts has ventured into online grocery retailing through its D-Mart Ready platform, it has decided to prioritize scaling up operations in existing cities rather than expanding into new locations. The management is confident in its ability to efficiently manage the online grocery vertical. DMart is investing in its online platform, and it plans to further grow its online sales in the coming years.

What do analysts say about the company's stock performance?

Brokerage firms like Nuvama and Jefferies have recommended a "hold" on Avenue Supermarts' stock. While Nuvama suggests a potential upside of approximately 8 percent, Jefferies predicts a marginal correction with a price target. Analysts generally anticipate an 8-20% correction in the stock over the next 12 months, primarily due to a slowdown in the General Merchandise business.

What is Avenue Supermarts' determination amidst market challenges?

Despite concerns raised by analysts, Avenue Supermarts remains committed to hiring top talent and enhancing its online grocery platform. The company's track record of growth and confidence in managing the online grocery vertical could prove crucial in overcoming the current market challenges.

DMart Q1FY24: Net Profit Up 2%, Revenue Rises 18.2%

The company's consolidated net profit for the quarter was ₹6,58.71 crore, showing 2% increase from the same period last year. However, it saw a significant 43% increase in net profit compared to the previous quarter.

The consolidated revenue from operations for the quarter was ₹11,865.44 crore, up 18.2% year-on-year. The standalone net profit for Q1FY24 was ₹695 crore, 2.2% increase from the corresponding quarter of the previous year.

While the revenue was largely in line with expectations, the company's profit fell short of analyst estimates. According to brokerages, DMart's Q4 revenue was projected to be ₹11,785 crore, and net profit was expected to reach ₹715 crore.

EBITDA for Q1FY24 stood at ₹1,035 crore, with an EBITDA margin of 8.7%. This was a slight decline from the 10% EBITDA margin in Q1FY23.