Reopening, Not Yet Recovery
This filing covers the quarter ended September 30, 2020 - the second quarter of India's COVID-19 disruption, and the first where lockdown restrictions genuinely eased nationwide rather than merely shifting from strict to less-strict. The prior quarter's post covered the full-lockdown quarter where revenue fell 33.22% year-on-year; this quarter narrows that decline to 11.43%, with revenue at Rs. 5,306.20 crore against Rs. 5,990.78 crore a year earlier. That's a real improvement in trajectory - roughly two-thirds of the gap closed in a single quarter - but it's still a decline, not a recovery: net income fell 38.47% year-on-year to Rs. 198.53 crore, and every margin line remains below its year-ago level even as it improves sequentially from Q1 FY2021's trough.
The stock didn't wait for the numbers to confirm the improvement. DMart closed this quarter at Rs. 2,203.15, down modestly from Rs. 2,317.15 at the end of Q1 FY2021 - a small pullback, not a reassessment - while the trailing-earnings-based multiple kept expanding (see Target Valuation Range below) because trailing profit fell faster than the share price did. The market's bet from last quarter - that this was a temporary disruption, not a structural hit - is still intact, and this quarter's partial recovery is exactly the kind of evidence that bet needed.
The Prescription
The sequential improvement from Q1 to Q2 - revenue decline narrowing from 33% to 11%, margins recovering off their trough - is the clearest evidence yet that DMart's core grocery-retail demand didn't disappear during the lockdown, it was simply deferred or redirected. Management should keep prioritizing store reopenings and operating-hour restoration over any defensive cost-cutting, since this quarter shows the underlying demand is still there to capture once physical access returns - the constraint this year has been supply-side (open stores, staffed shelves), not demand.
What it should stop doing: nothing, actually, on the payroll point specifically - the investor presentation accompanying this quarter (dated August 4, 2020) states plainly that the company pursued "no employee retrenchment" through the pandemic, which is the explanation for the Employee Benefit Expense growth flagged last quarter and continuing this one (see Beyond the Usual below). What the company should stop doing is leaving that policy as a single line in an investor-meet deck rather than stating it plainly in the quarterly results themselves - a deliberate, defensible choice like this deserves a sentence in the filing that actually reports the numbers it explains, not just a slide six weeks removed from them.
Key Financial Metrics
Quarter ended September 30, 2020 (consolidated), compared against Q2 FY2020 (quarter ended September 30, 2019)
FX: INR 73.705 = USD 1 (September 30, 2020 close).
| Metric | Q2 FY2021 (INR) | Q2 FY2021 (USD) | YoY Change | Note |
|---|---|---|---|---|
| Net Revenue (revenue from operations) | Rs. 5,306.20 crore | ~$719.9M | ⚠️ -11.43% | Stores reopening, footfall still below normal |
| Total Income (incl. other income) | Rs. 5,358.37 crore | ~$727.1M | ⚠️ -10.94% | |
| Total Expenses | Rs. 5,086.69 crore | ~$690.2M | ⚠️ -7.32% | Still falling slower than revenue |
| Operating Income (EBIT, reconstructed) | Rs. 280.95 crore | ~$38.1M | ⚠️ -35.22% | 5.29% margin, down from 7.24% |
| Adjusted EBITDA» (reconstructed) | Rs. 381.67 crore | ~$51.8M | ⚠️ -27.38% | 7.19% margin, down from 8.77% |
| Finance Costs | Rs. 9.27 crore | ~$1.3M | ✅ -51.24% | |
| Profit Before Tax | Rs. 271.68 crore | ~$36.9M | ⚠️ -34.49% | |
| Tax Expense | Rs. 73.15 crore | ~$9.9M | ⚠️ -20.53% | Effective rate 26.93%, up from 22.20% a year ago |
| Net Income | Rs. 198.53 crore | ~$26.9M | ⚠️ -38.47% | 3.74% net margin, down from 5.39% |
| Basic / Diluted EPS | Rs. 3.07 / Rs. 3.04 | ~$0.042 / ~$0.041 | ⚠️ -40.62% (basic) |
Operating Income and Adjusted EBITDA are reconstructed the same way as every DMart quarter on this site: Operating Income = Profit Before Tax + Finance Costs; Adjusted EBITDA adds back Depreciation and Amortisation (Rs. 100.72 crore, up 9.58% year-on-year) on top of that. This filing carries no balance sheet or cash flow statement, the same limitation as every DMart quarter covered so far.
Paid-up equity share capital held flat at Rs. 647.78 crore - no dilution.
Sequentially, this is a clean recovery: revenue up 36.65% quarter-on-quarter from Q1 FY2021's Rs. 3,883.18 crore, and net income up nearly 5x from Rs. 40.08 crore. Year-on-year, it's still a business that hasn't gotten back to where it was twelve months earlier. Both things are true at once, and a reader focused only on the QoQ trend would miss how much ground is still left to recover.
Key Operational Metrics
This is the first DMart quarter on this site with real operational data, via the investor presentation dated August 4, 2020 that accompanied this quarter's results - though the figures in it are FY2020 (year ended March 31, 2020) annual figures plus a Q1 FY2021 update, not this specific quarter's own operational numbers, which the company doesn't disclose at quarterly frequency:
- Store count: 214 stores as of FY2020 year-end (up from 176 a year earlier), concentrated in Maharashtra (76 stores) and Gujarat (37).
- Retail business area: 7.8 million sq ft at FY2020 year-end, up from 5.9 million a year earlier.
- Like-for-like» growth (24-month basis): 10.9% for FY2020, down from 14.2% in FY2019 - a deceleration that predates COVID entirely, worth noting since it's easy to attribute every 2020 slowdown to the pandemic.
- Debt/Equity: 0.03 at FY2020 year-end, essentially unlevered - confirms the low-finance-cost inference made in the Q4 FY2020 post.
- Return on Capital Employed: roughly 16% for FY2020, down from the low-20s% range in FY2018-FY2019 - margin compression and a larger capital base both weighing on this figure even before COVID hit.
- Q1 FY2021 update slide (covering the prior quarter): gross margin fell from 16.1% to 13.7% year-on-year, EBITDA margin from 10.3% to 5.8%, and PAT margin from 2.8% to 1.3%. The deck attributes the compression to "buying focussed on essentials" (discretionary categories were barred from sale until mid-May 2020 under lockdown rules), "pandemic support costs for frontline staff," and an explicit "no employee retrenchment" policy - which is the direct explanation for the payroll-growth finding below.
Stock Price: The Multiple Kept Expanding While Earnings Kept Falling
Over the trailing two years to this quarter's close, DMart's stock ranged from a low of Rs. 1,295.50 (April 2019) to a high of Rs. 2,383.65 (April 2020) - the same wide band flagged in the prior quarter's post, still driven by the pre-lockdown-to-post-lockdown-reopening round trip rather than anything new this quarter. The stock itself moved only modestly within the quarter (Rs. 2,317.15 → Rs. 2,203.15, a 4.92% pullback), but because trailing-twelve-month earnings fell faster than the price did, the implied earnings multiple kept climbing - see the valuation section below. This is the quietest quarter price-wise in this series so far, which is itself notable: after two quarters of COVID-driven volatility, the market seems to be waiting for confirmation of the recovery rather than pricing in more of it ahead of the data.
Beyond the Usual
Employee Costs Grew Faster Than Revenue for a Second Straight Quarter
Employee Benefit Expense rose 18.56% year-on-year (Rs. 111.12 crore → Rs. 131.75 crore) while revenue was still down 11.43% - a smaller gap than last quarter's 28.36%-growth-against-33.22%-decline, but the same direction for a second consecutive quarter. Two quarters of payroll growing while revenue shrinks or only partially recovers is no longer just a one-off no-furlough decision during the worst of the lockdown - it's a pattern of DMart rebuilding (or expanding) its workforce ahead of the sales recovery actually arriving, a bet on demand returning that this quarter's own numbers only partially validate.
Purchases of Stock-in-Trade Fell Faster Than Revenue, a Reversal From Q1
Purchases of Stock-in-Trade fell 15.56% year-on-year (Rs. 5,461.57 crore → Rs. 4,611.69 crore), outpacing the 11.43% revenue decline - a mild reversal from Q1 FY2021, where purchases and revenue fell in near-lockstep. Combined with employee costs growing (above), this reads as a company managing procurement conservatively while investing in headcount ahead of the recovery - two capital-allocation choices pulling in opposite directions on cost discipline, worth watching whether the pattern holds once revenue actually turns positive year-on-year.
Like-for-Like Growth Was Already Decelerating a Full Year Before COVID
The investor presentation's own multi-year chart shows 24-month like-for-like» growth falling from 21.5% in FY2017 to 10.9% in FY2020 - a steady deceleration that predates the pandemic entirely and runs through four full fiscal years, not something COVID caused. It's a useful baseline: some of the growth-rate concern a reader might attach to 2020's numbers was already underway before the lockdown ever started, which matters for judging how much of any future reacceleration is a COVID bounce-back versus a genuine change in trend.
Return on Capital Employed Nearly Halved Over Three Years, Even Before COVID
DMart's Return on Capital Employed fell from roughly 27.6% in FY2016 to roughly 16% in FY2020, per the same presentation - a steady decline as the company's capital base (stores, owned real estate) grew faster than the returns generated on it. This is a normal pattern for a retailer still in a heavy store-expansion phase (returns compress before scale economics catch up), not necessarily a red flag on its own, but it's a genuinely useful number a reader wouldn't otherwise have, since none of DMart's quarterly filings disclose it.
Target Valuation Range
DMart traded at roughly Rs. 1,42,700 crore (~$19.4B) market capitalization at this quarter's close (September 30, 2020) - a trailing-twelve-month P/E near 160x, richer than Q1 FY2021's ~147x, because the price barely moved while trailing earnings kept falling. The market's patience with a shrinking earnings base is being tested, not rewarded, by this quarter's numbers.
| Item | Value |
|---|---|
| Share price (September 30, 2020 close) | Rs. 2,203.15 |
| Shares outstanding | ~64.78 crore |
| Market capitalization | ~Rs. 1,42,716 crore (~$19.4B) |
| Total liabilities | Not disclosed (no balance sheet in this filing) |
| Less: cash and equivalents | Not disclosed |
| Enterprise value | Not computable without a balance sheet - market cap used as a proxy below |
A real DCF still isn't possible - no balance sheet, no cash flow statement across any DMart quarter covered on this site. Trailing-twelve-month net income through this quarter (FY2020's Rs. 1,300.98 crore, less the two quarters that have rolled out of the window - Q1 FY2020's Rs. 323.06 crore and Q2 FY2020's Rs. 322.63 crore - plus this year's Q1 FY2021 (Rs. 40.08 crore) and Q2 FY2021 (Rs. 198.53 crore)) works out to roughly Rs. 893.90 crore, implying a trailing P/E near 160x. TTM revenue through this quarter (Q3 FY2020's ~Rs. 6,810.55 crore + Q4 FY2020's Rs. 6,255.93 crore + Q1 FY2021's Rs. 3,883.18 crore + this quarter's Rs. 5,306.20 crore) works out to roughly Rs. 22,255.86 crore.
| Metric | This Quarter (Q2 FY2021) | Prior Quarter (Q1 FY2021) |
|---|---|---|
| TTM Net Income | Rs. 893.90 crore | Rs. 1,018.00 crore |
| Trailing P/E | ~160x | ~147x |
| TTM Revenue | ~Rs. 22,255.86 crore | ~Rs. 22,941.53 crore |
| EV/Revenue (market cap as EV proxy) | ~6.41x | ~6.54x |
That's the third consecutive quarter this series has shown the P/E multiple expanding rather than compressing despite falling trailing earnings - the market's confidence in a full recovery hasn't wavered across two full COVID-disrupted quarters, which makes next quarter's festive-season print the real test of whether that confidence gets rewarded with an actual earnings recovery or just extended further on faith.
As a sanity check only, here's what a peer-normalized bear case, a status-quo base case, and a continued-premium bull case each imply on EV/Revenue applied to this quarter's ~Rs. 22,255.86 crore TTM revenue:
| Scenario | Key Assumption | Implied EV/Revenue | Implied Market Cap | Implied Price/Share |
|---|---|---|---|---|
| Bear | Multiple compresses toward large-format retail peer levels | ~3.00x | ~Rs. 66,768 crore | ~Rs. 1,031 |
| Base | Today's multiple holds, no re-rating | ~6.41x | ~Rs. 1,42,716 crore | ~Rs. 2,203.15 |
| Bull | Market keeps extending patience with a shrinking trailing-earnings base | ~8.00x | ~Rs. 1,78,047 crore | ~Rs. 2,748 |
| Current (period-end close) | Actual September 30, 2020 close | - | ~Rs. 1,42,716 crore | Rs. 2,203.15 |
Avenue Supermarts Limited's quarterly financial results for the period ended September 30, 2020, filed under SEBI (Listing Obligations and Disclosure Requirements) Regulation 33 and published in NSE's financial-results archive, and its investor presentation for the same period.