D-Mart To Resume Store Expansion In FY22

Avenue Supermarts Ltd. aims to expand its online shopping and pick-up counter business to two to three more cities from the current five.

“D-Mart Ready is overall top line-accretive. In FY21, D-Mart Ready (primarily Mumbai) reported sales growth of 124% year-on-year, contributing 3.3% to overall revenue,” Kotak Institutional Equities said in a report citing the company’s conference call with investors. The operator of D-Mart supermarket chain, the brokerage said, is cautious with its online expansion strategy and targets only select metro cities.

Prabhudas Lilladher remains positive on D-Mart Ready, and expects it to post sales of Rs 1,500-2,000 crore by FY23. It should provide scale and mark a move towards being profitable in future, the brokerage said in its report after the call.

Besides, the retailer, according to the brokerages, intends to open 37 offline stores this financial year, aiming to make up for the tepid store opening in FY21. The company had opened 22 stores in the fiscal ended March 2021.

“Softer real estate market accelerated deal activity though D-Mart works with a mindset of having adequate land for next two-three years and not with a land-bank mindset,” Kotak Institutional Equities said. The retailer, it said, prefers to add large stores but is open to adding smaller stores as well if the location is right.

Covid-19 Impact

D-Mart witnessed weak footfalls as well as negligible sales of general merchandise because of restrictions on sale of such goods, both during the first and second waves of the pandemic.

Store operations in Maharashtra are yet normalise as restrictions continue. Store operation of at least 10-12 hours per day (especially in afternoons and evenings) is essential for sales to normalise to pre-Covid levels, Kotak Institutional Equities said. D-Mart’s same store sales contracted 9% in the second half of June.

Gross Margin

D-Mart is not looking to expand the 15% gross margin print. “As the company scales up further, it would source directly from large FMCG companies to remain the lowest priced competitor in the market rather than going the national/local distributors,” Kotak Institutional Equities said in its report.

Other Highlights

  • D-Mart sees private labels in the home and personal care category as a long-term opportunity, and is building labels.

  • Food comprises the largest proportion of D-Mart’s sales, and the intent is to continue using this category to attract customers while increasing products in general merchandise and apparel given new stores of larger sizes.

  • The company will continue its cluster-based approach prefers investing in regions they already understood.

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