The third-quarter earnings report of Avenue Supermarts, operating under the DMart brand, revealed a lack of festive season boost, with consolidated revenues and net profit growing by 17% each. However, this growth rate falls short of the 19-20% compounded annual growth rate (CAGR) achieved over the past nine quarters.

Impact of Inflation on FMCG Business

The company’s foods and non-foods (FMCG) business, which accounts for a significant portion of its revenues, has been adversely affected by high inflation. Neville Noronha, CEO & MD of Avenue Supermarts, highlighted lower-than-expected sales during the festive season, particularly in non-FMCG segments.

Per Store Growth Disappointment

A notable disappointment stems from the per-store revenue growth, which increased by only 5.2% year-on-year (YoY), compared to 6.5% in the previous quarter. Analysts attribute this slowdown to weaker festive season sales, impacting non-essential purchases and margins.

Margin Challenges and Outlook

Consolidated operating margins remained stagnant at 8.3% during the quarter, attributed to factors such as higher store sizes of new outlets and subdued demand in high-margin non-staples categories. Systematix Research anticipates margin normalization only in FY25, driven by easing inflation and improved performance in the general merchandise and apparel (GM&A) segment.

Competitive Landscape and Future Prospects

Despite facing stiff competition from players like Zudio and Reliance Trends, Avenue Supermarts remains optimistic about its long-term growth prospects. Brokerages believe that while the company faces near-term challenges, its expansion into underpenetrated states and efforts to enhance cost efficiencies offer opportunities for growth.

E-commerce Turnaround

A crucial aspect for Avenue Supermarts’ growth trajectory is the turnaround of its e-commerce arm, DMart Ready. Although revenues from DMart Ready grew by 23% in Q3, analysts stress the importance of overcoming challenges in this segment amidst competition from both offline and online players.

In conclusion, while Avenue Supermarts navigates through short-term hurdles, its strategic initiatives and market positioning indicate potential for long-term growth, contingent upon effectively addressing operational challenges and capitalizing on emerging opportunities.