Unlockdowned - DMart gets it mojo back from monsoons and school-going children

• Retail chain DMart reported a 6x increase in its profit for the June quarter even as inflation hit the pockets of the common man.
• Radhakishan Damani got what he wanted – a disruption-free quarter – and that seems to have turned around things for DMart.
• With Covid concerns minimal, DMart is poised for a strong showing going forward, but recession and inflation could play spoilsport.

Children going back to schools with bags loaded onto their back in raincoats is a sight for sore eyes. In addition to parents, it has made one of India’s richest men, Radhakishan Damani, the owner of DMart, very happy.

School bags, books, stationery items, shoes, uniform essentials, umbrellas, rain coats, rain shoes — these are things people flock to DMart for, during the June quarter. After a lull of two years, these sales are back and so are DMart’s fortunes as its revenues went up six times over to ₹10,038 crore for the quarter ending June.

Damani, who was bogged down by a lockdown or two every quarter for the last two years, had wanted ‘one disruption-free quarter’. Looks like he got more than what he was hoping for as June was the first such for the retail chain owner who has been hit by online ordering, inflation and hence lower consumer sentiment towards FMCG essentials.

In the meanwhile, this retailer has been expanding too and added 110 modern stores in the last three years, expanding its footprint from 30,000 square feet to 50,000 square feet.

“These modern stores (41% of total) couldn’t operate at full capacity since last stores years due to Covid but have done extremely well during 1QFY23,” said IDBI Capital.

The ‘modern stores’ here refer to bigger, better designed outlets that are made to handle larger footfalls, so the revenues from them will be notably higher in comparison to old DMart stores. However, the old stores also saw positive volume growth, which is another encouraging sign for investors.

Source: Company reports

The company however warned that June sales should not be considered a regular feature — because it has always been traditionally high. The next few quarters will tell the full picture of DMart’s turnaround after its sales and margins took a massive hit to almost ground zero in 2020-21.

“There has been a very good recovery of overall sales. However, this quarter’s performance is not comparable to the same period last year due to the second wave of Covid-19 during that time,” the company said in its exchange filing.

The next few quarters will tell the full story of DMart’s turnaround as its sales fell and margins hit almost a ground zero in 2020-21 due to lockdown.

However, growing sales in times when FMCG growth is muted due to high inflation, indicates an encouraging trend that people are buying more discretionary items.

“In old DMart stores, positive volume growth in the discretionary segment is encouraging. We have marginally adjusted our earnings per share (EPS) estimates upwards by 3-4% during FY23-24E as we expect a better revenue mix from the modern large size stores,” the report added, maintaining DMart as a ‘high conviction buy’.

DMart has seen a 15% rally in the last five days as the retail chain gave a sneak peek of its revenues a week before — encouraging investors who are closely watching corporate earnings as a cue in volatile markets.


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