Avenue Supermarts Ltd:Annual Report 2023-24 Analysis

Avenue Supermarts Ltd. (DMart): A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History #

Avenue Supermarts Ltd., operating under the brand name DMart, was founded in 2002 by Radhakishan Damani.

Headquarters Location and Global Presence #

The company’s headquarters are located in Mumbai, India. DMart’s presence is primarily within India.

Company Vision and Mission #

• Vision: To be the lowest priced retailer in the areas we operate in.
• Mission: To offer customers a wide range of basic home and personal products under one roof. Each DMart store stocks home utility products - including food, toiletries, beauty products, garments, kitchenware, bed and bath linen, home appliances and more - available at competitive prices that our customers appreciate.

Key Milestones in Their Growth Journey #

• 2002: First DMart store opens in Powai, Mumbai.
• 2007: Reaches 10 stores.
• 2017: Initial Public Offering (IPO) on the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).
• Continued expansion across India.
• 2024: Over 350+ stores across India.

Stock Exchange Listing Details and Market Capitalization #

Avenue Supermarts Ltd. is listed on the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). Market capitalization fluctuates based on market conditions. As of November 2024, the company’s market capitalization hovers around ₹300,000 Crores (INR 3 Trillion).

Recent Financial Performance Highlights #

DMart’s recent financial performance can be summarized as follows (based on available public reports):

• Consistent revenue growth year-on-year.
• Steady profitability despite increased competition and inflationary pressures.
• Focus on operational efficiency and cost control.
• Expansion of store network and online presence.

Management Team and Leadership Structure #

• Radhakishan Damani: Founder, Promoter & Director
• Ignatius Navil Noronha: CEO & Managing Director

Notable Awards or Recognitions #

DMart has received several awards and recognitions for its retail performance, including:

• Ranked amongst the most valuable brands in India.
• Recognized for strong financial performance and shareholder value creation.
• Awarded for its operational efficiency and supply chain management.

Their Products #

Complete Product Portfolio with Categories #

DMart offers a wide range of products, including:

• Food: Staples, groceries, snacks, beverages, packaged foods, frozen foods, dairy products.
• Non-Food: Toiletries, beauty products, personal care items, garments, kitchenware, bed and bath linen, home appliances, footwear, toys, stationery.
• General Merchandise: Luggage, sports goods, plastic containers, home cleaning.

Quality Certifications and Standards #

DMart emphasizes quality control and adherence to industry standards. This includes:

• Stringent quality checks for all products, especially food items.
• Compliance with all relevant food safety regulations and standards.
• Vendor audits and quality assurance programs.

Primary Customers #

Geographic Markets (Domestic vs. International) #

DMart’s primary market is India. There is no significant international presence.

Major Client Segments (agricultural, industrial, residential, etc.) #

DMart primarily targets residential customers seeking value-for-money shopping for everyday essentials.

Distribution Network and Sales Channels #

• Physical Stores: DMart operates a network of retail stores across India.
• DMart Ready: Online grocery delivery service.

Major Competitors #

Direct Competitors in India and Globally #

Direct Competitors in India:

• Reliance Retail (Reliance Fresh, Reliance Smart)
• Future Group (Big Bazaar) - (Note: Future Group’s retail assets are now largely under Reliance Retail’s control through restructuring)
• Spencer’s Retail
• More Retail
• BigBasket (Online Grocery)
• Grofers/Blinkit (Online Grocery)

Global Competitors:

• While not direct competitors due to geographical focus, companies like Walmart and Costco operate on similar discount retail models.

Comparative Market Share Analysis #

Market share data is dynamic and fluctuates based on various reports. DMart holds a significant share in organized retail in its operational areas.

Competitive Advantages and Disadvantages #

Advantages:

• Low Pricing Strategy: DMart’s focus on everyday low prices is a key differentiator.
• Efficient Supply Chain: Strong sourcing and logistics enable cost advantages.
• High Inventory Turnover: Efficient inventory management minimizes wastage and maximizes profitability.
• Strong Brand Recall: Trusted brand for value shopping.

Disadvantages:

• Limited Geographic Presence: Primarily concentrated in certain regions of India.
• Online Presence: While DMart Ready exists, the online segment is still growing compared to online-first competitors.
• Narrow Product Range (Relative to Hypermarkets): Limited focus on premium or niche product categories.

How they differentiate from competitors #

DMart differentiates itself through its commitment to everyday low prices, efficient operations, and a focus on value-conscious consumers.

Industry Challenges and Opportunities #

Challenges:

• Rising Competition: Increased competition from organized retail chains and e-commerce players.
• Inflationary Pressures: Rising input costs can impact profitability.
• Supply Chain Disruptions: Geopolitical events and logistical challenges can disrupt supply chains.
• Changing Consumer Preferences: Adapting to evolving consumer preferences and shopping habits.

Opportunities:

• Growing Organized Retail Sector: Increased penetration of organized retail in India.
• Expansion into Tier 2 & 3 Cities: Opportunity to tap into underserved markets.
• Digital Transformation: Leveraging technology to improve efficiency and enhance customer experience.
• Omni-channel Strategy: Integrating online and offline channels to reach a wider customer base.

Market Positioning Strategy #

DMart positions itself as a value retailer offering a wide range of essential products at everyday low prices.

Future Outlook #

Expansion Plans or Growth Strategy #

DMart’s growth strategy focuses on:

• Continued Store Expansion: Opening new stores in existing and new markets.
• Strengthening Online Presence: Expanding DMart Ready’s reach and offerings.
• Private Label Expansion: Increasing the share of private label products in its portfolio.

Sustainability Initiatives or ESG Commitments #

While specific details may vary over time, DMart generally focuses on:

• Energy efficiency in stores.
• Waste reduction and recycling programs.
• Ethical sourcing practices.

Industry Trends Affecting Their Business #

• Digital Commerce Growth: Increasing adoption of online grocery shopping.
• Focus on Sustainability: Growing consumer awareness of environmental and social issues.
• Personalization: Demand for personalized shopping experiences.
• Rise of Private Labels: Increased acceptance and demand for private label brands.

Long-Term Vision and Strategic Goals #

DMart’s long-term vision is to consolidate its position as a leading value retailer in India, expand its geographic footprint, and leverage technology to enhance its operations and customer experience.

Comprehensive Performance Overview #

3-Year Trend Analysis of Key Financial Metrics (Standalone) #

• Revenue from Operations: Increased consistently. FY2022: Not explicitly stated, but inferable from growth data. FY2023: ₹41,833.25 crore. FY2024: ₹49,532.95 crore, representing an 18.41% Y-o-Y growth.
• Profit After Tax (PAT): FY2022: Not explicitly stated, but inferable from growth data. FY2023: ₹2,556.40 crore. FY2024: ₹2,694.92 crore, showing a 5.42% Y-o-Y growth.
• Number of Stores: Increased Steadily. FY2022: 284 stores. FY2023: 324 stores. FY2024: 365 stores.
• Retail Business Area: FY22: 11.51 mn sq, FY23: 13.39 mn sq, FY24 15.15 mn sq.
• EPS (Basic): FY2022: Not stated. FY2023: ₹39.46. FY2024: ₹41.43, indicating growth.
• Operating Profit Margin: FY23: 7.84%, FY24: 7.38%
• Net Profit Margin: FY23 6.11%, FY24: 5.44%
• Inventory Turnover (Based on sales): FY2022 not provided, FY2023: 14.83. FY2024: 14.61, minor decrease
• Debt Equity Ratio: FY23 0.03, FY24 0.02.
• Return on Net Worth: FY23 16.80%, FY24 15.06%

Business Segment Performance #

• DMart operates primarily as a single, integrated retail business. The document provides a product category breakdown, not true business segments:
  • Foods: Contributed 56.95% of revenue in FY2024, up from 56.03% in FY2023.
  • Non-Foods (FMCG): Contributed 20.68% of revenue in FY2024, down from 20.93% in FY2023.
  • General Merchandise & Apparel: Contributed 22.37% of revenue in FY2024, down from 23.04% in FY2023.
• Avenue E-Commerce Limited (AEL) under the brand name DMart Ready had a revenue of 2,899.20 cr in FY24.

Major Strategic Initiatives and Their Progress #

• Cluster-Based Expansion: DMart added 41 stores in FY2024, focusing on deepening penetration in existing areas before expanding to new regions.
• E-commerce expansion: Avenue E-Commerce expanded its service coverage to include 70 more pin codes, now at a total of 23 cities.
• Green Building Certifications: 217 buildings are Green Building Certified, 38 gold certified under USGBC LEED, one gold under India GBC LEED, and 178 are GBC gold certified.
• Solar Energy: 36 solar plants were commissioned in FY24, with a total of 36 MW capacity.
• Water Conservation: Sewage Treatment Plants were installed, and 36% of total water use at locations is met through recycled water.

Risk Landscape Changes #

• Competition: Increased intensity from organized retail and e-retail sectors is highlighted as a key risk.
• Supply Chain Disruptions: Listed as a continuing challenge.
• Regulatory Changes: Potential changes in climate-related regulations leading to higher compliance costs.
• Cyber security: Any breaches in cyber security are a risk.
• Climate Change: Climate Change may result in lower sales, lesser profits and/or increased investments in the short to medium-term.

ESG Initiatives and Metrics #

Environmental #

• Green Building Certifications: 217 buildings received Green Building Certifications.
• Renewable Energy: 24.1% of energy requirement at 226 premises met through solar energy.
• Water Conservation: Sewage treatment plants treat 1,885 kiloliters/day. 36% of water usage at 180 premises is met through recycled water. Rainwater harvesting systems implemented.
• Waste Management: 64,843 MT of paper waste and 5,437 MT of plastic waste sent for recycling/co-processing.
• Sustainable Building Materials: Usage of AAC blocks and Manufactured Sand.
• Sustainable Products: Offers products containing recycled products.

Social #

• School Excellence Programme: Supports over 300 Government/Municipal/Zilla Parishad Schools, impacting over 136,000 students.
• CSR Focus Areas: Foundational education, sports promotion, nutrition, healthcare, sanitation and environment.
• Partnerships: Collaboration with organizations like Dakshana Foundation, Shanti Bhavan, IIT Mumbai, Udayan Shalini Fellowship.
• Public Sanitation Improvement: Working with the Central Railways to upgrade and maintain toilet blocks at Mumbai train stations.

Governance #

• Detailed Corporate Governance Report, Whistle-Blower Policy, and CSR Policy available on the Company’s website.

Management Outlook #

• Positive: The Chairman expresses confidence in the Company’s long-term growth potential, citing India’s growth prospects and DMart’s ability to scale and meet consumer needs.
• Cautious: Acknowledges macroeconomic uncertainties, supply chain challenges, and the need for continued cost efficiency.
• Growth: GDP growth is expected to moderate to 6.8% in fiscal 2025. Retail industry is estimated to grow 10-11% between 2024 and 2028.

Detailed Analysis #

Financial Position Analysis #

Balance Sheet Analysis #

3-Year Comparative Analysis of Assets, Liabilities, and Equity #

(Rs. in Crores)

Significant Changes in Major Line Items (>10% YoY) #

• Property, Plant and Equipment: Increased by 21.74% due to store expansion.
• Other Non-Current Financial Assets: Increased by 123.88% due to higher long-term deposits.
• Current Investments: Decreased by 47.25% due to changes in investment portfolio mix.
• Trade Receivables: Increased by 59.53% potentially due to changes in credit policies of subsidiary company or sales terms.
• Other Bank Balances: Decreased by 74.65%, indicating a shift in cash management.
• Other Current Financial Assets: Increased by 253%, primarily due to Increase in bank deposits.
• Other Equity: Increased by 17.53% driven primarily by retained earnings.
• Other Current Financial Liabilities: Increased by 38.18%.
• Current tax liabilities (Net): Increased by 197.91%
• Inventories: Increased by 21.85%, reflecting increased stocking for new stores and potentially higher sales volume.
• Cash and cash equivalents: Increased by 38.54%

Working Capital Trends #

Working capital has increased, driven by a significant increase in current assets, which is outpacing growth in current liabilities.

Asset Quality Metrics #

Asset quality is difficult to assess in a retail business based solely on financial statements. Key indicators are inventory turnover(14.61 times) which decreased slightly indicating efficient asset utilization.

Debt Structure and Maturity Profile #

The Group shows very low long-term debt (primarily lease liabilities). The provided data does not provide complete information of maturity, only a breakdown of current vs. non-current lease liabilities:

(Rs. in Crores)

Off-Balance Sheet Items #

• Contingent Liabilities: ’ 127.35 crores, related to tax matters and corporate guarantees. These represent potential future obligations.

Avenue Supermarts Limited: Financial Analysis FY 2023-24 #

Revenue Breakdown #

• Segment: Retail (single primary business segment)
• Geography: India (single reportable geographical segment)
• Revenue Mix (FY 2023-24):
  • Foods: 56.95%
  • Non-Foods FMCG: 20.68%
  • General Merchandise & Apparel: 22.37%
• Revenue Growth (Standalone): ₹49,722.00 crore, an increase of 18.40% compared to FY 2022-23.
• Revenue Growth (Consolidated): ₹50,788.83 crores, an increase of 18.56% compared to FY 2022-23.

Cost Structure Analysis #

• Standalone Basis (FY 2023-24):
  • Purchase of stock-in-trade: ₹43,214.52 crore
  • Employee benefits expense: ₹785.71 crore
  • Other expenses: ₹2,101.20 crore
• Consolidated Basis (FY 2023-24):
  • Purchase of Stock-in-trade: ₹43,958.31 crore
  • Changes in inventories, employee benefit expenses, Finance costs, and depreciation are the other costs.

Margin Analysis #

• Operating Profit Margin (Standalone): Decreased from 7.84% in FY 2022-23 to 7.38% in FY 2023-24.
• Net Profit Margin (Standalone): Decreased from 6.11% in FY 2022-23 to 5.44% in FY 2023-24.

EPS Analysis #

• Standalone Basis:
  • Basic EPS: Increased to ₹41.43 in FY 2023-24 from ₹39.46 in the prior year.
  • Diluted EPS: Increased to ₹41.36 from ₹39.22.
• Consolidated Basis:
  • Basic EPS: ₹38.99
  • Diluted EPS: ₹38.93

Cash Flow and Liquidity Analysis #

OCF, ICF, FCF Components (FY2024) #

OCF: #

• Standalone: Increased to ₹2,743.02 crore from ₹2,677.97 crore in FY23.
• Consolidated: Increased to ₹2,745.84 crore from ₹2,630.27 crore in FY23.
• Major adjustments to reconcile profit before tax include depreciation and amortization, and finance costs.

ICF: #

• Standalone: Net cash used was ₹(2,584.24) crore, compared to ₹(2,442.18) crore in FY23. Primary use was for the purchase of property, plant, and equipment, intangible assets, and investment properties.
• Consolidated: Net cash used was ₹(2,468.23) crore, compared to ₹(2,313.10) crore in FY23, with the largest use for property, plant, equipment purchases, and investment in subsidiaries.

FCF: #

• Standalone: ₹158.78 crore
• Consolidated: ₹277.61

Working Capital Management Efficiency #

• Debtors Turnover (Standalone): Decreased to 117.38 in FY24 from 128.20 in FY23.
• Inventory Turnover (Based on Sales, Standalone): Slightly decreased to 14.61 in FY24 from 14.83 in FY23.
• Trade payable Turnover Ratio (Standalone): Decreased to 52.25 from 58.81.

Capex Analysis #

• Property, Plant and Equipment and intangible asset with ₹2,687.01 Cr in FY2024 and ₹2,131.29 in FY2023
• The Company is constructing new stores across various locations with ongoing projects.

Dividend and Share Buyback Trends #

• Dividend: No dividend was recommended for FY24.
• Share Buyback: No share buyback in the reporting period.

Debt Service Coverage #

• Interest Coverage Ratio (Standalone): Increased to 82.58 in FY24 from 68.22 in FY23.
• The Company has No debt obligations during the current and previous year.

Liquidity Position and Cash Conversion Cycle #

• Current Ratio (Standalone): Decreased to 3.23 in FY24 from 4.00 in FY23.
• Cash and Cash Equivalents (Standalone): Increased to ₹258.92 crore at the end of FY24 from ₹186.83 crore at the end of FY23.
• Consolidated: Increased to ₹337.12 Crore FY24 from ₹207.15 Cr FY23

Key Performance Indicators #

Profitability Ratios (3-Year Trends) #

• ROE: FY24: 15.06%, FY23: 16.80%, FY22: Not available. A declining trend.
• Operating Profit Margin: FY24: 7.38%, FY23: 7.84%, FY22: Not available. A slightly decreasing trend.
• Net Profit Margin: FY24: 5.44%, FY23: 6.11%, FY22: Not Available. Showing decrease in FY24.

Liquidity Metrics #

• Current Ratio: FY24: 3.23, FY23: 4.00. A decreasing trend, but still indicates strong short-term solvency.

Efficiency Ratios #

• Fixed Asset Turnover: FY24: 3.97, showing a slight improvement, FY23:3.81.
• Inventory Turnover (Based on Sales): FY24: 14.61, FY23: 14.83, There is slight drop in FY 24.
• Debtors Turnover: FY24: 117.38, FY23: 128.20. A decrease, indicating a slightly slower collection of receivables.

Leverage Metrics #

• Debt Equity Ratio: FY24: 0.02, FY23: 0.03, The low ratio indicates minimal reliance on debt.
• Interest Coverage Ratio: FY24: 82.58, FY23: 68.22. An extremely high ratio, showcasing the company’s strong ability to cover interest expenses. Showing improvement.

Working Capital Ratios #

• Working Capital Turnover Ratio: FY24: 11.84, FY23: 10.45.

DMart Business Segment Performance Analysis (FY 2023-24) #

Revenue and Profitability Overview #

• Standalone revenue from operations increased by 18.41% YoY, reaching ₹49,532.95 crore.
• Consolidated revenue grew by 18.56% YoY, totaling ₹50,788.83 crore.
• Standalone Net Profit Growth increased by 5.42% YoY, amounting to ₹2,694.92 crore.
• Consolidated Net Profit Growth increased by 6.61%.
• Operating Profit Margin decreased from 7.84% to 7.38%.
• Net Profit Margin declined from 6.11% to 5.44%.
• Avenue E-Commerce Limited revenue grew to ₹2,899.20 crore, but still operating at a loss.

Segment-Specific Performance #

• Foods: Contributed 56.95% of total revenue, an increase from 56.03% the prior year.
• Non-Foods (FMCG): Represented 20.68% of revenue, a slight decline from 20.93%.
• General Merchandise & Apparel: Contributed 22.37% of revenue, slightly lower than 23.04%.

Market Position #

• DMart operates in the organized retail sector, estimated at ₹11 trillion, representing approximately 11.8% of the total retail industry.
• Focuses on value retailing with an EDLC/EDLP strategy.

Product/Service Performance #

• Foods: Largest revenue contributor.
• Non-Foods (FMCG): Steady contribution.
• General Merchandise & Apparel: Significant revenue stream, with a slight decrease in proportion.
• DMart Ready (E-commerce): Growing online presence.

Geographic Distribution and Expansion #

• 365 stores across 10 states, 1 union territory, and NCR.
• Maharashtra and Gujarat are key markets.
• 41 new stores were added in FY 2023-24.
• E-commerce serves 23 cities, with 21 miniMAX stores.

Capital Expenditure and Returns #

• Full utilization of ₹4,078 crore raised via QIP.
• ₹2,550 crore directed towards capex payments.
• ₹32.98 crore invested in energy conservation equipment.
• Return on Net Worth: 15.06 % vs 16.80 % in prior year (consolidated group).

Operational Efficiency #

• Inventory Turnover decreased from 14.83 to 14.61.
• Debtors Turnover decreased from 128.20 to 117.38.
• Revenue per Retail Business Area Sq Ft increased to ₹32,941 from ₹31,096.
• Bill Cuts increased by 17% YoY.
• IOT energy monitoring system led to energy saving.

Growth Initiatives and Challenges #

• Growth Initiatives:

  • Continued store expansion, using a cluster-based approach.
  • Growing presence in the e-commerce space via DMart Ready.
  • Focus on sustainability initiatives.
  • Social initiatives focused on education, healthcare, environment, and nutrition.

• Challenges:

  • Managing macroeconomic challenges and supply chain disruptions.
  • Maintaining cost efficiencies and customer value proposition amid rising competition.
  • Adapting to changing consumer needs and preferences.
  • Addressing cyber security risks.
  • Climate Change: Risk of lower sales, and lesser profits or increased investment.
  • Potential impact of pandemics.

Risk Assessment #

Strategic Risks #

• Severity: High. The EDLC/EDLP strategy’s success hinges on maintaining consistently low prices. Competitive intensity, with more retailers adopting similar models, increases the severity.
• Likelihood: Moderate. The consistent growth and store expansion indicate current success, but long-term sustainability is challenged by potential market saturation and evolving consumer preferences.
• Trend: Increasing. Competitive intensity is referenced repeatedly, along with the growth of organized retail and e-retail.
• Mitigation Strategies: Cluster-based expansion, focus on financial fundamentals, and a customer-centric approach are referenced.
• Control Effectiveness: Partially effective, as evidenced by stable financial performance, but the trend of increasing competition is a factor.
• Potential Financial Impact: Revenue per retail area sq. ft. saw a YoY increase (‘31,096 in FY22-23 to ‘32,941 in FY23-24). Like-for-Like Growth was 9%, but there is no information on whether this is a positive or negative trend compared to previous years..

Operational Risks #

• Severity: Moderate to High. Inability to secure viable real estate, retain employees, maintain optimal inventory, or manage expansion can significantly disrupt operations.
• Likelihood: Moderate. The document notes challenges in acquiring commercially viable real estate and timely regulatory approvals. Managing expansion into new locations is also highlighted.
• Trend: Stable but with emerging concerns. Store count increased (324 to 365), indicating successful expansion, but the document also raises concerns about new store locations and their potential effect on overall productivity.
• Mitigation Strategies: Employee training and skill upgradation programs, robust IT systems, and supply chain efficiencies are mentioned.
• Control Effectiveness: Partially effective. Inventory turnover decreased slightly (14.83 in FY22-23 to 14.61 in FY23-24), while Fixed Asset Turnover increased (4.10 in FY 2022-23 and 4.18 in FY 2023-24).
• Potential Financial Impact: Directly impacts revenue, operational costs, and profitability. No specific quantitative metrics on operational disruptions are provided.

Financial Risks #

• Severity: Low to Moderate. The company has a very low debt-equity ratio (0.02 in FY23-24, 0.03 in FY22-23) and high interest coverage ratio (82.58 in FY23-24 and 68.22 in FY 2023), but the changing consumer behaviour is mentioned.
• Likelihood: Low. Strong financial indicators suggest low immediate risk.
• Trend: Stable. Debt-equity ratio has decreased, which is good, and the interest coverage ratio has increased.
• Mitigation Strategies: Conservative financial management, reflected in low debt, is evident.
• Control Effectiveness: High. Key financial ratios indicate sound financial health.
• Potential Financial Impact: Operating profit margin declined (7.84% to 7.38%), and Net Profit Margin decreased (6.11% to 5.44%). Return on Net Worth also decreased (16.80% to 15.06%).

Compliance/Regulatory Risks #

• Severity: Moderate. The document references potential changes in climate-related regulations that may lead to higher compliance costs.
• Likelihood: Moderate. Growing regulatory focus on sustainability and environmental issues is mentioned.
• Trend: Potentially increasing due to global emphasis on climate change and sustainability.
• Mitigation Strategies: Investments in green building certifications, renewable energy, and water conservation practices are highlighted.
• Control Effectiveness: Developing. The company is building systems to measure, monitor, and define sustainability.
• Potential Financial Impact: Higher cost of compliance, potential for increased investments in green technologies, and reputational risks are acknowledged. No specific financial metrics are provided for this category.

Emerging Risks #

• Severity: Moderate to High. COVID-19 variants or other pandemics are mentioned as having a potential adverse impact. Also, climate change is referenced as an area that can affect sales, profits, and increase investments. Cyber security breaches are indicated as a potential disrupter of business operations.
• Likelihood: Moderate to unknown, depending on the specific risk. Pandemics are unpredictable, and the long-term effects of climate change are still being assessed. Cyber security is ongoing.
• Trend: Variable.
• Mitigation Strategies: No clear mention about managing COVID, but mentions the climate change matrix and IT system controls for cyber security.
• Control Effectiveness: Not directly addressed, but IT systems are stated to support key aspects of the business.
• Potential Financial Impact: Material and adverse effects on business operations, financial condition, and results, as per explicit statements in the document. No specific quantitative metrics are provided.

Strategic Analysis of DMart (Avenue Supermarts Limited) #

Long-Term Strategic Goals and Progress #

• DMart’s long-term strategic goal is to be the lowest-priced retailer in its operating regions, employing an Everyday Low Cost/Everyday Low Price (EDLC/EDLP) strategy.
• Progress is demonstrated by consistent store expansion (41 new stores in FY 2023-24, reaching 365 total stores) and a cluster-based expansion approach, deepening penetration in existing markets before entering new ones.
• The retail business area has expanded, totaling 15.15 million sq. ft. as of FY2023-24.
• Revenue from operations has consistently grown year-over-year.
• Geographical expansion focuses on 10 states, 1 union territory and NCR.

Competitive Advantages and Market Positioning #

• DMart’s primary competitive advantage is its EDLC/EDLP pricing strategy, offering value to customers.
• Market positioning is strong in the value-retailing segment, driven by a focus on essential products (Foods, Non-Foods FMCG, and General Merchandise & Apparel).
• DMart maintains cost efficiencies through local market knowledge, careful product assortment, and supply chain efficiencies.
• High inventory turnover ratio (14.61 in FY24) highlights sales strength and the efficent management of the stock.
• The fixed asset turnover ratio shows stability.

Innovation Initiatives and R&D Effectiveness #

• The document contains limited information on innovation and R&D, stating, “Expenditure incurred on Research and Development: Nil.”
• Investment in technology is evident, specifically in IT systems for cash management, in-store operations, logistics, and human resources, which contributes to operational efficiency, although not explicitly labeled as R&D.

Management’s Track Record in Execution #

• Management’s track record can be inferred as strong, based on consistent store expansion, revenue growth, and profitability.
• The company maintained profitability with positive return on net worth, despite of YOY decrease.
• The growth in the number of bill cuts highlights successful customer acquisition and retention.

Capital Allocation Strategy #

• Capital allocation is primarily focused on store expansion, as evidenced by the significant increase in the number of stores and retail business area.
• The company fully utilized the proceeds from a Qualified Institutions Placement (QIP) for Capex payments, debt repayment, and working capital/general corporate expenses.
• No dividend was recommended for FY 2023-24, indicating a focus on reinvesting profits for business expansion.

Organizational Changes and Their Impact #

• The document discloses some appointments of Senior Managerial Personnel, without a clear articulation of the strategic rationale or expected impact.
• Cessations of personal from their positions are presented, but without impact details.
• There was a reconstitution of certain Board Committees (Audit, Nomination & Remuneration, Stakeholders Relationship), reflecting changes in board composition, but impacts are not clarified.

ESG Framework: DMart Analysis 2023-24 #

Environmental Metrics and Targets #

• Energy:
  • Solar power met 24.1% of the total energy requirement at 226 premises, increasing from 21.8% in the previous year.
  • 58 stores met more than 50% of electricity needs through solar energy, up from 45 stores the previous year.
• Water:
  • 36% of total water usage at 180 premises was met with recycled water.
  • Sewage Treatment Plants (STPs) reduced freshwater usage by an estimated 154,895 kiloliters across 180 premises.
  • Rainwater harvesting systems have a cumulative designed capacity of 9,694 cubic meters per day across locations.
• Waste:
  • Paper waste sent for recycling or co-processing: 64,843 metric tons (MT)
  • Plastic Waste sent for recycling or co-processing: 5,437 MT
  • Post-consumer plastic waste recycled or disposed: 8,021 MT
• Green Building:
  • 217 buildings hold Green Building Certifications.

Social Responsibility Programs #

• Direct Intervention: Programs supported students across over 300 government/municipal/Zilla Parishad schools, affecting more than 136,000 students.
• Education Support: Interventions include digital literacy, reading programs, English language instruction, remedial classes, and school infrastructure improvements (BALA initiative).
• External Partnerships: Supported Dakshana Foundation, Shanti Bhavan, IIT Mumbai, and Udayan Shalini Fellowship, focusing on underprivileged student education and scholarships.
• Nutrition: Collaborated with Seva Mandir and Akshaya Patra, impacting over 4 million meals served through mid-day meal schemes.
• Water Resource Management: Partnered with Tata Trusts’ programs (CSPC and CInI) in Gujarat and Maharashtra, creating significant water storage capacity (10.81 MCFT).
• Sanitation: Public toilet blocks were renovated and maintained.

Governance Structure and Effectiveness #

• Board Composition: As of March 31, 2024, the Board comprised 7 directors: 3 executive, 1 non-executive non-independent woman director, and 3 independent directors (including a woman director), ensuring compliance with the Companies Act, 2013, and Listing Regulations.
• Board Committees: Key committees include Audit, Nomination and Remuneration, Stakeholders Relationship, Corporate Social Responsibility, and Risk Management, all constituted as per statutory requirements.
• Audit Committee Composition: Complies with Section 177 and Reg 18.
• Nomination and Remuneration Committee: Complies with section 178 and Reg 19.
• Stockholder Relationship Committee: Complies with section 178 and Reg 20.
• CSR Committee: Complies with Section 135 of CA,2013.
• Board Meetings: Held 5 meetings, fulfilling quarterly meeting requirements.
• Independent Directors: Provided declarations confirming their independence as per Section 149(6) of the Companies Act, 2013, and Regulation 16(1)(b) of the Listing Regulations.
• Vigil Mechanism/Whistle-Blower Policy: A policy is in place for reporting concerns about unethical behavior, with direct access to the Audit Committee Chairman.

Sustainability Investments and ROI #

• Environmental Initiatives: The report details investments in solar energy (36.0 MW cumulative capacity) with 32.98 Cr spent in capital, sewage treatment plants, rainwater harvesting, and waste recycling, though specific ROIs for these initiatives are not provided.
• Social Initiatives: A CSR spend of ‘42.57 crores, exceeding the statutory requirement.

Regulatory Compliance and Future Preparations #

• Compliance: The Company states compliance with key environmental regulations, including the Plastic Waste Management Rules, 2016, Battery Waste Management Rules, 2022, and E-Waste (Management) Rules, 2022, and extended producer responsibility (EPR) obligations.
• Listing Regulations: Complied with various regulations.
• Future Preparations: The Company is increasing its focus on green building certifications, renewable energy, water conservation, and waste management. The ongoing development of a sustainability matrix indicates preparation for more defined future targets and measurement systems.
• BRSR: Complied with BRSR core, including assurance statement.

DMart (Avenue Supermarts Limited) Financial Analysis #

Management Guidance and Assumptions #

• Management’s guidance focuses on a cluster-based expansion strategy, deepening penetration in existing areas before expanding to new regions.
• Everyday Low Cost/Everyday Low Price (EDLC/EDLP) principle is a core assumption, driving customer value and operational efficiency.
• Management assumes continued resilience of the Indian economy and strong private consumption patterns.
• Management aims for sustained growth across key financial metrics through store footprint expansion.
• Management has a Sustainability Matrix that indicates the company goal of the long term with incremental change, no plan for quick change.

Market Growth Forecasts #

• The overall retail industry in India is estimated to have grown at 11% in FY 2023-24.
• Organized retail is estimated to have grown at 16% in FY 2023-24.
• E-retail is estimated to have grown at 20% in FY 2023-24.
• The food and grocery segment accounts for about 20% of the total organized retail industry in value terms.
• Retail industry is projected to grow at a compounded annual growth rate of 10-11% between 2024 and 2028.
• GDP growth in India is expected to be 6.8% in fiscal 2025.

Planned Strategic Initiatives #

• Continued expansion of store footprint using a cluster-based approach.
• Deepening penetration in existing markets.
• Continued focus on the EDLC/EDLP pricing strategy.
• Enhancements in supply chain efficiencies.
• Investment in renewable energy and green building practices.
• Support public education and partner with external organizations on social initiatives in education, healthcare, environment, and nutrition.
• Improve IT systems that simplify complicated procedures for business requirements.

Capital Expenditure Plans #

• 41 new stores were opened in FY 2023-24, with a total of 365 stores as of March 31, 2024.
• The retail business area expanded to 15.15 million sq. ft.
• Capex payments for the year ending March, 2024 stood at 2550 Cr.
• ‘32.98 Cr. was spent for capital investment on energy conservation equipment.
• Ongoing investments in distribution and packing centers (62 distribution centers and 10 packing centers as of March 31, 2024).
• Planned investments in solar energy installations and green building certifications.
• Hydraulic Baling Press machines, and Energy Monitoring Systems are planned for continued implementation.

Efficiency Improvement Targets #

• Maintain cost efficiencies while offering the best customer value.
• Increased use of solar energy to reduce energy costs.
• Improvement in water conservation practices.
• Reduction of Scope 3 emissions and GHG through vendor collaboration and supply chain.
• Consolidation of buying and transporting merchandise through large distribution centers.
• Enhance the quality of products for durability.

Potential Challenges and Opportunities #

Challenges #

• Geopolitical uncertainties, supply chain disruptions, and volatile commodity markets.
• Competition from existing retailers (including E-retailers) and potential new entrants.
• Availability of commercially viable real estate at suitable locations.
• Attracting, hiring, training, and retaining skilled employees.
• Maintaining optimal inventory levels.
• Breach of cyber security, outbreaks of new variants of COVID-19, or other pandemics.
• Climate Change may lead to lower sales, lesser profits, and/or increased investments, and regulatory changes may result in a higher cost of compliance.
• Lower women enrollment in STEM courses.

Opportunities #

• Long-term growth potential of the Indian economy.
• Increasing consumer spending.
• Expanding store network and reaching new customers.
• Continued growth in the organized retail sector.
• Potential for growth in the online grocery retail segment (DMart Ready).
• Positive impact of collaborative efforts of regulatory, economic, and supply chain partners.
• Opportunity in peri-urban and industrial towns.
• Increase community participation.

Scenario Analysis and Sensitivity to Key Assumptions #

• Scenario 1: Lower than Expected GDP Growth: If GDP growth falls below the projected 6.8%, consumer spending could slow, impacting revenue growth. Sensitivity: A 1% reduction in GDP growth could lead to a noticeable reduction in same-store sales growth and potentially delay store expansion plans, the financials did not offer the exact amount.
• Scenario 2: Higher than Expected Inflation: Increased inflation could significantly impact operating costs (e.g., product procurement, energy, wages). Sensitivity: If inflation is higher than anticipated, DMart’s ability to maintain its EDLC/EDLP strategy may be tested.
• Scenario 3: Increased Competition: More aggressive competition (especially from e-commerce) could pressure margins and market share. Sensitivity: Market share loss to competitors could negatively impact revenue growth and profitability, although precise figures cannot be presented without additional data.
• Scenario 4: Successful Execution of Expansion Plans: Rapid, successful store expansion could lead to exceeding revenue and profit targets. Sensitivity: Store growth significantly contributes to revenue; exceeding the target of 41 new stores per year could substantially boost financial performance.
• Scenario 5: Successful Water Management: Water conservation projects replenish more than 40% of total water consumption.
• Scenario 6: Successful Waste Management: The waste management practices have created an environment where waste generation is very limited.

Audit & Compliance #

Audit and Regulatory Analysis #

Auditor’s Opinion #

• The Statutory Auditors (S R B C & Co LLP) issued an unmodified (clean) opinion on both the standalone and consolidated financial statements for the year ended March 31, 2024.
• No qualifications, reservations, or adverse remarks were reported by the Statutory Auditors in their report.
• Other auditors who have been relied upon by the Statutory Auditors have furnished their report.

Key Accounting Policies #

• The financial statements are prepared under the historical cost convention, with exceptions for certain financial assets and liabilities, defined benefit plan assets, and share-based payments, which are measured at fair value.
• The change in Accounting Policies with respect to IND AS 12 for Deferred Tax treatment is included in the year.
• Depreciation on property, plant, and equipment is provided on the written-down value method over the assets’ estimated useful lives, except for leasehold land, which is amortized over the lease term.
• Intangible assets are amortized on a straight-line basis over their estimated useful lives.
• Inventories are valued at the lower of cost (weighted average) and net realizable value.
• Revenue recognition follows Ind AS 115, recognizing revenue when control of goods or services is transferred to the customer at the transaction price.
• The change in Accounting Policies relating to IND AS 1, IND AS 8, and IND AS 12 have been made.

Internal Control Effectiveness #

• The Company has adequate internal financial controls with reference to the standalone financial statements, and these controls were operating effectively as of March 31, 2024.
• The internal audit function reports directly to the Audit Committee, and the Audit Committee reviews internal audit reports and internal control measures quarterly.
• Systems exist to check accounts payable.

Regulatory Compliance Status #

• The Company has complied with all applicable Secretarial Standards.
• The Company has generally complied with the provisions of applicable laws, including the Companies Act, 2013, SEBI Regulations, and other relevant regulations.
• The Company has a system in place to monitor and ensure compliance with applicable laws, rules, regulations, and guidelines.
• The audit trail for accounting software has been implemented in the system.

Legal Proceedings and Potential Impact #

• The Company has disclosed the impact of pending litigations on its financial position in Note 36 of the standalone financial statements.
• As per Note 36, the outstanding disputed amounts include Income Tax, Value Added Tax, Goods and Service Tax matters and Other matters.

Related Party Transactions #

• All related party transactions were in the ordinary course of business and on an arm’s length basis.
• The transactions complied with the Companies Act, 2013, and Listing Regulations.
• Omnibus approval was obtained for repetitive and unforeseen transactions, with a statement presented to the Audit Committee quarterly.
• Material related party transactions, with AEL a subsidiary, were entered into during the year.
• The Board of Directors have approved the entering into contract with AEL.

Subsequent Events #

• The Company evaluated subsequent events from the balance sheet date through May 4, 2024, and determined there were no material items to disclose beyond those already included in the financial statements.

Accounting Quality and Regulatory Risk Assessment #

• Material RPT have been disclosed in AOC-1.
• There were no reported instances of fraud by the Company or material fraud on the Company.
• No penalties or strictures were imposed on the Company by Stock Exchanges, SEBI, or any statutory authority on capital market-related matters in the last three years.
• There were no instances of non-compliance with Corporate Governance requirements.
• A Vigil Mechanism/Whistle-Blower Policy is in place, and access to the Chairman of the Audit Committee is provided.
• CRISIL Ratings Limited revised its Credit rating outlook.
• The Company has complied with the requirements of Plastic Waste Management Rules, 2016, Battery Waste Management Rules, 2022 and E-Waste (Management) Rules, 2022 and subsequent amendments of each of these rules.
• The Company has taken adequate steps for protecting against foreign exchange risk and is not exposed to any commodity risk.
• There are no open points for pending resolution and the remarks for complaints made by employees and workers and shareholders have been provided.