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Avenue Supermarts Limited Analyst Meet Summary
Meeting Overview • Date: August 6, 2024 • Event: Analyst/Institutional Investors Meet on July 30, 2024 • Key Executives: • Neville Noronha (MD and CEO) • Niladri Deb (CFO)
Company Performance Insights • General Merchandise and Apparel: • Recovery observed; slight gross margin decline but positive outlook. • Store Expansion: • 41 new stores opened; plans for continued expansion in existing markets. • E-commerce Development: • Cautious growth of DMart Ready to ensure stability.
Financial Results • Revenue: INR 49,533 crores • EBITDA Margin: 8.3% • PAT: INR 2,695 crores (5.4% growth) • Operational Efficiency: Stable inventory turnover and return on equity. • E-commerce Subsidiary: Avenue E-commerce sales up by 31.7%, but reported a loss.
Q&A Highlights • Product Mix Inquiry: Increased food percentage due to agri-food inflation. • DMart Ready and Quick Commerce: No quick commerce pursuit; focus on larger city e-commerce. • Store Expansion Plans: Ready to open 40-50 stores annually; quick commerce competition not impacting metro revenues. • Fresh Produce Strategy: Continued focus on brick-and-mortar for fresh items. • Apparel Segment Complexity: Focus on basic, fashionable items; no return to previous levels expected.
Strategic Focus Areas • Terms of Trade and Private Labels: Increased bargaining power; long-term private label development. • Talent Acquisition: Strategic hiring for growth over the next decade. • Store Additions: Projected 40-45 new stores this year, potential for 60 in the future.
Operational Insights • DMart Ready Performance: 40%-45% of deliveries within 12 hours; 86% within 24 hours. • Customer Data Utilization: Enhancing internal metrics and operational efficiency. • Gross Margin Outlook: Expected to remain between 14% and 15.5%.
Future Considerations • Expansion Strategy: No new distribution centers before entering new states; supply from existing centers. • Market Opportunities: Potential expansion in Orissa and Uttar Pradesh. • Focus on Customer Engagement: Customer preferences will guide product mix and strategy.
Summary of Conference Call with Neville Noronha
Challenges and Learnings from Expansion • Importance of enhancing capabilities as the company scales; mismanagement can dilute perceptions.
Competition Landscape • Acknowledgment of quick commerce success; DMart serves different customer needs.
Private Labels • Standalone private label stores not viable; value lies in lower pricing compared to branded products.
Store Addition Aspirations • Aim to grow store count despite a reduction in growth target from 20% to 15%.
Launch of Reflect Healthcare • Minimal impact on operating expenses; small space within stores.
Minimax Stores Operational Expenses • Additional costs are minimal; concerns about rapid expansion deviating from cautious growth strategy.
Integration and Omnichannel Strategy • Exploring integration of Minimax stores with pickup points; profitability metrics promising.
Minimax Store Leasing • Minimax stores are leased, unlike DMart's owned locations.
Big Box Wholesale Format • Dismissed the idea of entering the big box wholesale format.
Accounting Practices for Property Acquisitions • Costs split between land and building based on valuation for tax compliance.
Meeting Overview • Date: August 2, 2023 • Led by senior management including CEO and CFOs • Included presentation and Q&A session
Financial Performance • Decline in general merchandise and apparel contributions • Stable revenue and EBITDA • Improved inventory turnover ratios • E-commerce segment expanded to 10 new cities with limited revenue growth
Strategic Focus • Cluster-based expansion with 40 new stores added • Emphasis on brick-and-mortar recovery post-COVID-19 • Confidence in e-commerce and complementary services
Competitive Landscape • Increased competition in low-price segments • Need for better category management in apparel • E-commerce strategy focused on increasing basket values
Store Expansion and Real Estate • Target of 40 new stores annually despite land acquisition challenges • CEO's capacity to open 60 stores limited by real estate conditions • Focus on smaller towns for new store openings
E-commerce Insights • E-commerce requires more manual labor and precise operations • Plans to optimize home delivery and store pickup • Strong performance in cities like Pune and Hyderabad
Apparel and General Merchandise • Acknowledged challenges in apparel category • General merchandise remains a core strength • Growth potential identified in basic apparel segment
Customer Behavior and Market Trends • Shift towards smaller towns affecting foot traffic • Inflation impacting discretionary spending • Premiumization trend in larger towns with price sensitivity strategy
Future Outlook • Confidence in growth without specific market share focus • Long-term strategy for private labels and cautious geographical expansion • Anticipation of clearer trends in apparel sales
Conclusion • Avenue Supermarts Limited is addressing challenges in apparel and general merchandise while focusing on grocery retail and e-commerce enhancements.
Summary of Neville Noronha's Concall on Avenue Supermarts Limited
Business Segment Performance • Apparel issues do not affect FMCG due to organizational structure • Decreased inventory levels indicate operational agility • Talent challenges in the Apparel business
Store Expansion • 80% readiness for a 50-store rollout; talent acquisition bottleneck • Challenges in land scouting and due diligence • High attrition rates complicate internal capabilities
Talent Retention and Hiring • Significant company growth over 20 years • Successful long-term employee retention • Difficulties in hiring external talent; emphasis on internal promotion
Margin Maintenance • No margin pressure despite retail competition • Apparel space allocation remains unchanged • Challenges in expanding into ecologically sensitive regions
GMA Brands and E-commerce Operations • GMA brands operate like manufacturer brands • Future branding investments will focus on differentiation • E-commerce KPIs emphasize order fulfillment metrics
Growth Strategy • Growth measured by number of stores, not square footage • Advocates for percentage-based growth strategy • Cautions against focusing solely on size to avoid inefficiencies