FY22 Q2: Good Revenue Rebound: Dmart reported Q2 FY22 revenue growth of 46.6%/52% YoY/Quarterly as closing restrictions eased. EBITDA of 6.7 billion rupees was 4% below estimates due to GM’s 14.3% decline due to weaker-than-expected general merchandise sales. Store additions will continue to increase as construction activity recovers. We believe the stock is pricing in solid revenue growth without margin thinning. Selling at a fair value of Rs 3,080.
47% YoY Revenue Growth Due to Loosening of Lockdown Restrictions: Dmart reported standalone Q2 FY22 revenue of Rs76.5 billion, implying revenue growth of 46.6% YoY and 52% QoQ. Revenue growth was on the expected lines as the lockdown restrictions of the second wave of Covid were eased during the quarter, bringing store operations back to normal. Dmart stores two years and older (187 approx) grew 23.7% year-over-year in September 2021 although this should be viewed in the context that the underlying quarter was not normal. Overall, the recovery in revenue indicates that footfall is returning to near-normal levels and new stores are increasing well.
Weaker-than-expected general merchandise sales affect gross margins: GM declined 194 basis points qoq to 14.3% but was 80 basis points lower than expected due to the limited contribution of general merchandise. GM’s decline resulted in a 34 basis point loss in EBITDA margin and therefore a 4% loss in EBITDA. In a previous update, the company clarified that many stores were restricted from selling non-essential products on certain days of the week or for a continuous period on 1QFY22. We think some of it may have continued into Q2 FY22 as well, putting GM in a weaker-than-expected position.
Accelerate warehouse expansion in fiscal year 2022; Dmart Ready is expanding further: Dmart opened eight new stores in 2QFY22, bringing the total number of stores to 246. It added 12 stores at 1HFY22 (versus six at 1HFY21; 13 stores at 1HFY20) and we expect store additions to accelerate at 2HFY21 as they usually do. We are baking 35 new stores in both 2022 and 2023. The e-commerce (Dmart Ready) business continued to expand; It launched its operations in Surat and Vadodara, bringing the total number of cities with Dmart Ready to seven. We note that the pace of expansion of Dmart’s e-commerce business has picked up recently, indicating management’s focus on acquiring the unhacked e-grocery space.
positive revenue recovery; Stock prices carry a significant increase in revenue: the total value of 3,080“ includes 600 worth of Dmart Ready. It also makes fairly stringent assumptions at 2,049 stores by fiscal year 2020 with no margin dilution and a steadily improving rate of return on investment (RoCE). Sell.