Avenue Supermarts Ltd Management Discussions

ECONOMIC OVERVIEW

The Indian economy grew by an estimated 7.6% in FY 2023-24 as compared to 7.0% in the previous financial year. (Source: Ministry of Statistics & Programme Implementation). Geopolitical uncertainties and supply chain constraints continued to be the key challenges externally for the country, however, robust spending in the domestic economy backed by policy support ensured economic resilience.

Outlook

GDP growth is expected to moderate to 6.8% (Source: CRISIL Research) in fiscal 2025 as fiscal consolidation, rising borrowing costs and tighter regulatory measures weigh on demand. Additionally, heightened geopolitical uncertainties weigh in on the overall growth prospects. On the other hand, another spell of normal monsoon and easing inflation could revive rural demand for India.

INDUSTRY OVERVIEW

The overall retail industry is estimated to have grown at 11 % to Rs.93 trillion in FY 2023-24. Organised retail is estimated to have grown at 16% to Rs.11 trillion (~11.8% of the overall retail industry) while E-retail is estimated to have grown at 20% to Rs.3.6 trillion (~3.9% of the overall retail industry). Of the total organised retail industry, the food and grocery segment accounts for about 20% (in value terms) as of FY 2023-24. Retail industry is estimated to grow at a compounded annual growth rate of 1011% between 2024 and 2028 as economic activity picks up and inflation remains in a low to moderate range. Improvement in the macroeconomic environment backed by increase in consumer spending in the longer-term auger well for the Retail Industry. (Source: CRISIL Research)

BUSINESS OVERVIEW

Avenue Supermarts Limited (DMart) is a national supermarket chain, with a focus on value-retailing. We offer a wide range of products with a focus on the Foods, Non-Foods (FMCG) and General Merchandise & Apparel product categories. Since launching our first store in 2002 in Mumbai, Maharashtra, we have grown to 365 stores with a retail business area of 15.15 million sq. ft. spread across Maharashtra (109), Gujarat (60), Telangana (41), Andhra Pradesh (34), Karnataka (32),

Tamil Nadu (22), Madhya Pradesh (21), Rajasthan (17), Punjab (13), NCR (9), Chhattisgarh (6) and Daman (1). We remain focused on our strategy of offering our customers good quality products at great value, based on the Everyday Low Cost/Everyday Low Price (EDLC/EDLP) principle. Our store offerings provide our customers with a distinctive shopping experience, comprising of a wide range of everyday value retail products sold in a modern ambience and with the feel of a large retail mall. We believe our endeavour to facilitate one-stop shop convenience for our customers everyday shopping needs, along with our competitive pricing due to our local market knowledge, careful product assortment and supply chain efficiencies, has helped us achieve steady growth.

Key Performance Indicators

Over the years we have seen steady growth in the number of stores and consequently our retail business area.

*22 New Stores were added in FY 2020-21 and two of our older stores were converted in Fulfillment Centre for Avenue E-Commerce Limited

**During FY 2023, 1 location was reconverted from Fulfillment Centre to DMart Store

Our operations are ably supported by a network of distribution centers and packing centers. As of 31st March, 2024, we had 62 distribution centers and 10 packing centers. Our total number of bill cuts was 30.3 crore in FY 2023-24 as compared to 25.8 crore during FY 2022-23. Our annualised revenue from sales per retail business area sq. ft. was Rs.32,941 in FY 2023-24 and Rs.31,096 in FY 2022-23.

Financial Performance

Key Financial Ratios

Human Capital

Our employees are critical to our business. We internally assess our employees to periodically identify competency gaps and use development inputs (such as skill upgradation training) to address these gaps. We have implemented staff training policies and assessment procedures and intend to continue placing emphasis on attracting and retaining motivated employees. We plan to continue investing in training programmes and other resources that enhance our employees skills and productivity. We will continue to help our employees develop understanding of our customer- oriented corporate culture and service quality standards to enable them to continue to meet our customers changing needs and preferences.

At the end of FY 2023-24, we had a total of 13,971 permanent employees and 59,961 employees were hired on contractual basis.

Information Technology (IT)

Our deep understanding of local needs and our ability to adapt quickly to changing consumer preferences has helped

our performance driven growth. Our robust IT systems have significantly aided this growth by simplifying complex processes throughout our operations. Our IT systems are equipped with an array of data management tools specific to our business needs and support key aspects of our business. IT has enabled our cash management systems, in-store systems, logistics systems, human resources, project management, maintenance, and other administrative functions. This implementation has contributed positively towards minimising product shortage, pilferage, out of stock situations, etc. and has increased overall operational efficiency.

Internal Control Systems and their Adequacy

We have put in place internal control systems and a structured internal audit process vested with the task of safeguarding the assets of the organisation and ensuring reliability and accuracy of the accounting and other operational data. The internal audit department reports to the Audit Committee of the Board of Directors.

Similarly, we maintain a system of monthly review of the business as a key operational control, wherein the performance of units is reviewed and corrective action is initiated. We also have in place a capital expenditure control system for authorising spend on new assets and projects. Accountability is established for implementing the projects on time and within the approved budget. The Audit Committee and the Senior Management Team are regularly apprised of the internal audit findings and regular updates are provided of the action taken on the internal audit reports. The Audit Committee reviews the quarterly, half yearly and the annual financial statements of the Company. A detailed note on the functioning of the Audit Committee and of the other committees of the Board forms part of the section on corporate governance in the Annual Report. During the year, we carried out a detailed review of internal financial controls. The findings were satisfactory and suggestions for improvement have been taken up for implementation. Policy guidelines and Standard Operating Procedures (SOPs) continue to be updated where required, to keep pace with business requirements.

Risks and Concerns

The Board of Directors reviews the Companys business risks and formulates strategies to mitigate those risks. The Senior Management team, led by the Managing Director, is responsible for proactively managing risks with appropriate mitigation measures and ensuring their implementation thereof.

Below are some of the key risks and concerns in our business:

• If we are unable to continue to offer daily low prices pursuant to our EDLC/EDLP pricing strategy, we risk losing our distinct advantage and a substantial portion of our customers, which will adversely affect our business, financial condition, and results of operations

• Availability of commercially viable real estate properties at suitable locations for our new stores, timely execution of sale deeds/leave and license registrations and getting regulatory approvals for these properties

• Our ability to attract, hire, train and retain skilled employees

• Our inability to maintain an optimal level of inventory in our stores may impact our operations adversely

• Our continued understanding and prediction of consumers changing needs and preferences and timely customising of our offerings

• Effective management of our store expansion and operations in newer locations/cities/states

• Any breach of our cyber security measures could potentially result in disruption of our business operations

• The outbreak of new variants of COVID-19 or any other pandemic could materially and adversely affect our business, financial condition, and results of operations

• Climate Change may result in lower sales, lesser profits and/or increased investments in the short to medium-term. Further, any potential change in climate-related regulations may lead to higher cost of compliance.