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MUMBAI: If Avenue Supermarts Ltd’s June quarter outcomes are a sign of what’s to return for smaller retailers, then buyers ought to put together themselves for some very nasty surprises.
Avenue Supermarts runs the DMart chain of retail shops.
Standalone earnings per share fell as a lot as 86% to ₹0.77 within the June quarter from ₹5.37 in the identical interval final yr. True, earnings had been hit as a result of unprecedented disaster that adopted within the wake of covid-19 pandemic, which led to a pointy drop in footfalls and impacted gross sales, particularly these of non-essential merchandise.
In that context, the 34% year-on-year decline in June quarter revenues isn’t too shocking. While asserting its March quarter outcomes, Avenue had indicated how revenues for April and the primary fortnight of May had panned out. As such, the second half of the June quarter appears to have turned out higher than the primary half. There is seen month-on-month enchancment in April, May and June turnover, which declined by 45%, 35% and 20% respectively, as per JM Financial Institutional Securities Ltd’s workings.
While that’s heartening, it’s the drop within the profit margins that’s upsetting. Earnings earlier than curiosity, tax, depreciation and amortisation (Ebitda) margin contracted by a large 747 foundation factors year-on-year to 2.84%. One foundation level is one-hundredth of a share level. Ebitda margin for the March quarter stood at 6.7%.
In a report, dated 11 July, analysts from JM Financial mentioned, “There appears to have been no saving in ‘other expenses’ whatsoever, despite some stores being closed for a few weeks altogether.” On a standalone foundation, different bills rose 22% year-on-year in the course of the June quarter. Employee prices, too, jumped nearly 29% over final yr’s quarter.
Avenue was in a position so as to add two shops within the final quarter, taking the shop depend to 216 as on 30 June. It has recovered about 80% or extra of pre-covid gross sales in most shops the place operations are allowed unhindered. “This is a concern, as it implies store level revenue decline of about 20% to continue for the September quarter, even for stores which are fully functional,” mentioned analysts from Credit Suisse Securities (India) Pvt. Ltd in a report on 13 July.
Moreover, demand for discretionary merchandise remains to be tepid, particularly for the non-FMCG (fast-moving client items) classes, which usually get pleasure from increased margins.
Meanwhile, one in all Avenue’s observations about worth not being an enormous precedence for consumers in the course of the lockdown stands out. If the pattern sustains, then the attraction for the corporate’s low priced merchandise would scale back to that extent, consuming into revenues.
“In this disruptive time, the market share in massive metropolis retail is being taken up by mom-and-pop shops (kirana) and e-commerce. The longer the influence of covid-19, the upper are the possibilities of some customers completely shifting to e-commerce,” level out Credit Suisse analysts.
Of course, the Avenue stock’s costly valuations present that buyers are ignoring the near-term hit to earnings. Based on Friday’s closing worth, the stock trades at about 72 instances estimated earnings for 2022, in accordance with Bloomberg information.
A delay in restoration is a key danger for the stock. Avenue shares have remained a favorite of buyers. The moot query is whether or not the June quarter outcomes would taper their lofty expectations of the corporate.
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