D-Mart strategically positioned itself as a comprehensive value retailer, providing a diverse array of everyday products at affordable prices. The store is structured into three key categories: Food, non-foods, and general merchandise.
D-Mart follows the Everyday low cost – Everyday low price (EDLC-EDLP) strategy which aims at procuring goods at competitive prices, using operational and distribution efficiency and thereby delivering value for money to customers by selling at competitive prices.
On October 18, 2021, the stock reached its all-time high price of ₹ 5,900 per share. Throughout the entire fiscal year 2021, the retailer opened 22 new stores and transformed two existing ones into fulfilment centres.
In the first quarter of fiscal year 2022, the company experienced a 31.3% growth in revenue and a 2.35% increase in net profit compared to the same period the previous year. Additionally, the company disclosed an EBITDA margin of 4.4% in Q1 FY22, an improvement from 2.8% in Q1 FY21.
However, following the post-COVID period, the stock has experienced a significant decline. As of Monday, February 19, 2024, it is currently trading at ₹3,709 per share, representing a 37% decrease from its peak price.
Radhakishan Damani, the company’s promoter, possesses a majority stake of 74.64%, with total Institutional Investors holding 16.41% and retail investors holding 8.87% in the company.
● One concerning aspect is the decline in DMart’s sales per square foot, dropping from Rs 35,647 in the fiscal year 2019 to Rs 31,096 in the fiscal year 2023. Furthermore, in H1FY24, the company’s sales per square foot further decreased to ₹16,729.
● Additionally, DMart has been expanding its store network at a slower rate. From the fiscal year 2019 to the fiscal year 2023, the company added a total of 171 stores, bringing the overall store count to 324. In H1FY24, an additional 12 stores were added. Currently, it has a presence in 345 locations across the country.
● The company faces stiff competition from rivals such as Reliance Retail and Tata Big Basket. Additionally, the increasing trend of online shopping negatively impacts the company’s conventional physical store business. In the
March quarter of FY23, Reliance Retail, a key competitor, expanded its store count by 966, three times the total number of stores owned by DMart. Furthermore, in the financial year 2023, Reliance Retail added a substantial 3,300 stores.
● The company is also facing increased competition from other retailers in the general merchandise and apparel segment. This is a high gross margin segment of D-Mart.
● DMart has been sluggish in expanding its store network compared to its peers. Consequently, due to increased infrastructure costs and a lower gross margin, the company’s Return on Capital Employed (RoCE) has yet to recover to its pre-Covid level of 25.42% in FY19. In the most recent fiscal year of 2023, the reported ROCE was 18.79%, falling short of the pre-Covid period.
● In Q3FY24, on a standalone basis, the company experienced a 1.9% year-on-year decline in net profit margin. Additionally, the operating profit margin saw a year-on-year decrease of 1.6%.In FY23, the company’s average bill value dropped to ₹1,621 compared to ₹1,677 in FY22.
● The General Merchandise and Apparel contribution of the company saw a decrease of 150 basis points year-on-year (YoY) in the first half of FY24, falling from 24.75% in 1HFY23 to 23.21%, indicating a weakness in that category. According to the management, this contribution has stabilised in the third quarter of FY24.
● As reported by the management, there is a notable inflation in agri-staples (excluding edible oil) within the FMCG segment. The company’s EBITDA margin has experienced a year-on-year decline of 10 basis points.
Written by Omkar Chitnis
Disclaimer
The views and investment tips expressed by investment experts/broking houses/rating agencies on tradebrains.in are their own, and not that of the website or its management. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution while investing or trading in stocks. Dailyraven Technologies or the author are not liable for any losses caused as a result of the decision based on this article. Please consult your investment advisor before investing.
