Avenue Supermarts Q2 sales recover but profits strained

Avenue Supermarts reported sales revenues much better than June quarter with a growth in sales of 36.65% on a sequential basis

Oct 17, 2020 02:10 IST India Infoline News Service

Avenue Supermarts reported sales revenues much better than June quarter with a growth in sales of 36.65% on a sequential basis. The operating profits were up nearly 1246% on a sequential basis while the net profit for Sep-20 quarter was up 395% on a sequential basis. However, these may not be strictly comparable due to the unnatural fall in revenues and profits in the June quarter due to COVID-19.
A clearer picture emerges when you see the data on a yoy basis. Net sales are still down 11.4% and that has resulted in a 46% fall in operating profits largely due to the substantial fixed cost component of the retail business. The net profit fall on a yoy basis was just about 38% but that was more a rescue by other income. The good news is that the top line is gradually getting back to pre-COVID levels after the shock of the pandemic.

Here are the financial highlights

Particulars Sep-20 Quarter Growth (YOY) Growth (QOQ)
Total Revenues Rs5,306.20cr -11.43% +36.65%
Operating Profit Rs228.78cr -46.24% +1246.56%
Net Profits Rs198.53cr -38.47% +395.33%
Key Ratios Sep-20 Quarter Sep-19 Quarter Jun-20 Quarter
Diluted EPS Rs3.07 Rs5.11 Rs0.61
Operating Margins 4.31% 7.10% 0.44%
Net Profit Margin 3.74% 5.39% 1.03%

Key takeaways from the Sep-20 quarter results
  • The numbers of D-Mart are surely showing a gradual move back to the pre-COVID levels. As a result, the sequential growth numbers are not too indicative as they show growth from a very small base. But on a yoy basis, the sharp fall in sales has impacted profits.
  • The operating new cash flows for the first six months of the fiscal ending on Sep-20 stood at Rs.502 crore as compared to Rs.484 crore in the corresponding period in the previous fiscal year.
  • If you compared the six months of the current fiscal with the six months of the last fiscal, the cash burn has been to the tune of Rs.160 crore. Clearly, the company has been falling back upon its existing cash to keep the operations running under COVID.
  • In terms of risks, the company has stated that the full impact of the pandemic may not be yet visible in the numbers. Additionally, the new Code on Social Security 2020 could also impact the company’s contributions towards PF and gratuity and impact its profitability numbers in the coming quarters.
  • During the second quarter ended Sep-20, the company added 6 stores while 2 were closed and converted into fulfilment centres for the ecommerce business. From a business standpoint, the mega expansion of Reliance Retail poses a big risk.

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