A note I did on DMart in Oct 16. Today the market is rewarding it for its strong fundamentals.

1. 55
62
75
89
110
15
20 23 26 28
1.6
1.8
2.1
2.7
3.3
2011 2012 2013 2014 2015 2016 2017
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
0
20
40
60
80
100
120
2012 2013 2014 2015 2016
Store Count | SPF | Business Area
Store Count SPF(Rs. '000) Business Area(msf)
260
65
2218.09
3350.95
4699.32
6454.39
8599.63
86.88 138.95 242.35 312.49 488.77
20%
32%
26%
22% 21%
2011.5 2012 2012.5 2013 2013.5 2014 2014.5 2015 2015.5 2016 2016.5
0%
5%
10%
15%
20%
25%
30%
35%
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
2012 2013 2014 2015 2016
Table 1: Revenues | PBT| LFL Growth
Revenues(Rs. Crores) PBT(Rs. Crores) LFL Growth
Sources: Draft Red Herring Prospectus, SEBI | Business-Standard.com
DMart
“When the basics are right”
DMart
With a focus on value-retailing, DMart is the one of the largest and most profitable
F&G retailer in India [Technopak]. The format operates and manages its growing
number of stores predominantly on an ownership model rather than on rental
model. It follows a cluster approach targeting densely populated residential areas
with a majority of lower middle, middle and aspiring upper-middle class consumers.
It attracts and holds its target customers through quality goods and EDLP pricing
strategy.
Its focus on efficient supply chain is supported by 21 distribution centres, 6 packing
centres and clustered store presence in Western & Southern India.
Unravelling growth story
During 2012-16, DMart revenues and PBT grew at a CAGR of 40.32% and 54.01% with
an LFL growth consistently above 20% for the period. [Table 1]
While the store size has remained close to 28000 square feet and number of bills per
store have grown at a CAGR of 4% only over the years, the average sales per store
grew from Rs. 62.3 crores in 2014 to Rs. 77.87 crores in 2016 at a CAGR of 12%. This
can be attributed more to volume growth than inflation which grew at an average 5%
over 2014-16.
This indicates that DMart has been achieving its sales growth and high SPFs on the
back of increasing number of stores and volume growth driven by its compelling
product assortment. On the other hand, PBT growth is derived from low operating
cost which it attributes to its store ownership model.
Getting the basics right
DMart classifies its products under three different categories: Foods, Non-foods (FMCG) and General merchandise (Apparels, footwear and home
products) which have maintained a constant average sales contribution of 50%, 25% and 25% over the years.
With majority of the products being essential in nature and EDLP strategy throughout the year, the business is not materially affected by
seasonality/macro-economic conditions. It focuses on basic and fast moving product assortment rather than discretionary goods such as fashion and
electronics and delivers a moderate inventory turnover ratio of 14 year-on-year.
DMart stores are present in locations with high customer and vehicular traffic which helps it to capture the targeted market. Besides this, it claims to
have deep understanding of customer preferences and keen interest in customer feedback. This has led it to deliver an SPF of Rs. 28136 against Rs. 5300
for Future Retail.
The approach of owning the real estate or leasing it for 30 years for majority of its shops over rental model has led it to deliver fixed asset turnover ratio
of 3.95, control fixed costs per store and deliver EDLP along with profitability.
In order to sustain the business model and pricing strategy, DMart is required to maintain high level of operational efficiency which is achieved through
strong inventory management systems, clustered presence and regional distribution centres (21).
October’16
Shelly Gera
On the list!
Avenue Supermarkets, the parent company, has filed DRHP for Rs. 1870 crore public issue with SEBI. It plans to use 58% of the proceeds for repayments
and prepayments and 19% towards construction of new stores and for purchase of fit outs, not digressing from its store ownership model. Rest 20% shall
be used for repaying the loans.
The company strongly bets its future on increasing the store presence through ownership model and clustered approach, intelligent product assortment
and efficient supply chain. While the recipe has been similar across the industry, it is the execution and getting the basics right which has made it the
most profitable and benchmark for the industry.