Avenue Supermarts (D-Mart) defies odds with a 14.2% boost in revenue amid fierce competition in Q2 FY25

Avenue Supermarts Limited, the company behind D-Mart, reported a strong performance for the quarter ending September 30, 2024. Total standalone revenue increased by 14.2%, reaching INR 14,050 crore, compared to INR 12,308 crore in the same quarter last year. Despite solid revenue growth, the profitability metrics showed some pressures, indicating challenges, particularly from rising online grocery competition and the need to maintain low pricing.

The net profit for Q2 FY25 stood at INR 710 crore, a year-on-year increase of 7.9%. The company’s EBITDA for the quarter reached INR 1,105 crore, reflecting a growth of 10.3%. However, there was a slight decrease in EBITDA margins, which stood at 7.9%, compared to 8.1% during the same period last year. Experts point out that this drop in margins could be a result of intensified pressure from digital grocery players, including the company’s own e-commerce arm, DMart Ready. The increased competition in the online space, coupled with the inherent costs of expanding logistics and maintaining a high-quality supply chain, has put pressure on profitability despite robust revenue gains.

Growth Despite E-Commerce Challenge

Mr. Neville Noronha, CEO & Managing Director of Avenue Supermarts, indicated that while traditional stores still performed well, there was a noticeable impact from online grocery formats. “The like-for-like revenue growth for stores two years or older stood at 5.5% in Q2 FY25, which reflects the pressure we are seeing from our digital competitors,” Noronha stated indirectly. He added that the company’s own e-commerce initiative, DMart Ready, grew by 21.8% during H1 FY25, suggesting that the company is working hard to capture both brick-and-mortar and online consumers.

E-commerce has reshaped consumer behavior, with more people gravitating toward the convenience of online shopping. Avenue Supermarts is fully aware of this shift and continues to focus on its own digital arm to compete with the likes of other established online grocery platforms. DMart Ready, although relatively new, has shown impressive growth, reflecting the management’s commitment to gaining traction in this rapidly expanding market. Expanding delivery coverage and ensuring efficient operations are some of the key initiatives being undertaken to support this growth.

Avenue Supermarts opened six new stores in Q2 FY25, expanding its footprint to 377 operating stores as of the end of September 2024. The company follows the “Everyday Low Cost – Everyday Low Price” (EDLC-EDLP) strategy, which enables it to procure goods at competitive rates and pass on savings to customers, thereby maintaining its value-driven brand proposition. This strategy remains core to the company’s operations and is a major factor in its ability to retain customer loyalty amid increased competition.

Half-Year Performance Shows Consistent Growth

For the half-year ended September 30, 2024 (H1 FY25), Avenue Supermarts posted total standalone revenue of INR 27,762 crore, reflecting a year-on-year growth of 16.2%. The net profit for the first half was INR 1,523 crore, marking a 12.5% growth compared to H1 FY24. EBITDA for H1 FY25 was INR 2,326 crore, a growth of 14.1% compared to the same period last year, while the EBITDA margin slightly slipped from 8.5% in H1 FY24 to 8.4% in H1 FY25.

Analysts are cautiously optimistic about the company’s growth trajectory, noting that while revenue metrics are strong, the company faces headwinds from increased operational costs and a more competitive retail landscape, particularly from e-commerce giants. The focus on expanding the physical store network while simultaneously enhancing the digital experience is seen as a strategic approach that aims to balance traditional retail with modern consumer demands.

In addition to revenue growth, Avenue Supermarts has focused on enhancing operational efficiencies. By improving logistics, ensuring quicker restocking, and streamlining the supply chain, the company has been able to maintain consistent growth. However, increasing operational costs remain a concern, particularly as inflation affects raw material costs, transportation, and labor expenses. Experts suggest that managing these costs while continuing to maintain competitive pricing will be one of the main challenges moving forward.

Expert Opinions on the Outlook

A retail industry analyst opined that the current trends show resilience in traditional retail but also highlight the necessity for omnichannel strategies. The analyst commented that Avenue Supermarts’ growth is commendable, but with shrinking margins and a growing e-commerce presence, it is clear that the company must keep innovating. The analyst also noted the company’s continuous store expansions as a positive move but stressed that enhancing e-commerce capabilities would be crucial for future growth.

As consumer preferences shift, companies like Avenue Supermarts must also adapt by offering a seamless experience that integrates both online and offline shopping. The analyst emphasized that integrating technology and enhancing customer engagement across platforms is key to sustaining long-term growth. While the company’s efforts to expand its e-commerce presence are commendable, more investment in technology and data analytics could further improve efficiency and consumer insights.

On the consolidated front, Avenue Supermarts reported revenue of INR 14,445 crore for Q2 FY25, showing a year-on-year increase of 14.4%. However, consolidated PAT margins also fell slightly, which indicates the ongoing challenge of cost pressures across different operational segments. These pressures are largely due to rising logistical costs and increased spending on digital infrastructure, which are crucial for the company’s continued expansion.

Share Price Performance and Market Sentiment

Avenue Supermarts Limited’s stock (NSE symbol: DMART) has shown mixed sentiment post the Q2 FY25 earnings release. The shares closed 2% higher at INR 3,900 on the day of the announcement, as investors responded positively to the solid revenue figures despite some concerns over margins. Analysts have expressed a cautious stance on the stock, citing pressures from increasing digital competition and rising operational costs. The ongoing efforts to expand the store count and improve online presence have been well-received, but concerns regarding profitability persist.

The company’s management remains hopeful about future growth as they continue to invest in expanding both their physical retail footprint and digital infrastructure, aiming to serve a larger and more diverse customer base across India. The dual strategy of enhancing the in-store experience while expanding online services is seen as a way to future-proof the company in an increasingly competitive retail environment. Investors will be closely monitoring the company’s ability to maintain growth while managing costs effectively, especially in the face of rising competition from both online and traditional retailers.