As COVID-19 cases surged in Maharashtra, forcing partial lockdown, there is fear of slowing sales at DMart.BI India/DMart
As COVID-19 cases surged in Maharashtra, forcing partial lockdown, there is fear of slowing sales at DMart.
Even before the partial lockdown was implemented in Maharashtra on April 4, DMart saw its March numbers dwindling.
The per capita retail spending in Maharashtra is the highest among all Indian states and it worked really well during the good times.
Expanding into poorer and more populous states like Uttar Pradesh and Bihar is an opportunity to both reduce risk and grow sales for DMart.
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The ₹1.8 lakh crore ($25 billion) Avenue Supermarts has warned that the pandemic may hamper sales in the near future for DMart, India’s second biggest retailer by revenue.
In the last year, DMart, owned by India’s 8th richest man Radhakishan Damani, opened 22 new stores and saw its revenue grow 18% in the financial year ending March 31, 2021. But the sales from stores that are at least two years old — a metric used to separate the added sales from new stores — shrank 9.4% in the first half of March.
The big reason was the Mumbai-based company’s struggle last month was its focus on one state, Maharashtra, which has been the worst hit in the second wave of the COVID-19 pandemic. Even partial restrictions in some parts of one state was enough to dent sales by a tenth.
Although DMart said the second fortnight of March saw growth compared to the same period last year, it was due to the low-base effect. There was a full scale countrywide lockdown last year in the second half of March. Overall — thanks to the easing in recent months and the new stores — the company managed to clock an 18% revenue growth for the full year.
DMart
FY20
FY21
Revenue
₹6,193 crore
₹7,303 crore
DMart had launched its first store in Mumbai’s Powai in 2002. Since then, the company has gone on to have a total of 234 stores across India.
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However, most of its stores are in Maharashtra. The state, which is the home to country’s financial capital Mumbai, accounts for 35.5% of all DMart stores in the country. The retailer has bought more land in Maharashtra to invest more in the state.
A key part of the famed DMart’s model of success was this concentration. According to broking firm Elara Capital, Maharashtra, Tamil Nadu, Karnataka and Gujarat are top four states in terms of per capita retail spending and population size and nearly two out of three of DMART stores are in these four states. It worked really well during the good times.
DMart has yet to enter North and East India. It has no presence in India’s two most populous states of Uttar Pradesh and Bihar on account of its strict adherence to cluster- based expansion philosophy
The stock seems to have priced at least some of DMart’s struggles in the last month. It is down 10.4% since March 5. Motilal Oswal, a broking firm, has turned ‘neutral’ on the stock, said that the stock could see further correction in the near term due to the spike in COVID-19 cases and the resultant lockdown in Maharashtra.
Even as DMart emerges from the pandemic, it will face tougher competition from Mukesh Ambani’s Reliance Retail (combined, possibly, with its proposed acquisition of Future Retail’s Big Bazaar), Tata’s entry in grocery with BigBasket as well as e-commerce giants like Amazon, Flipkart.
Whether he goes for more online sales or more offline stores, a wider reach maybe necessary to reduce the concentration risk. Expanding into poorer states is also an opportunity to grow the business given DMart’s proven expertise as a low-priced retailer pushing high volumes. Even the cost of real estate would be lower than Maharashtra in many parts and that is important for DMart which prefers to own its outlets than to rent.
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