The Tax-Rate Cushion From Last Quarter Is Gone
This filing covers the quarter ended June 30, 2023 - Q1 of Avenue Supermarts' FY2024. Revenue grew 18.20% year-on-year to Rs. 11,865.44 crore, but net income grew just 2.46% to Rs. 658.71 crore. Total expenses grew 19.75% to Rs. 11,006.92 crore - marginally faster than revenue, for a fifth consecutive quarter of real margin compression. Operating Income (reconstructed) grew 2.15% to Rs. 911.83 crore, and operating margin fell to 7.68% from 8.90% a year ago.
As in Q4 FY2023, Other Expenses is again the fastest-growing major cost line, up 23.85% year-on-year to Rs. 560.84 crore - two straight quarters now where this unitemized line, not depreciation or payroll, is what's actually eating the margin. Employee Benefit Expense (+14.87%) and D&A (+12.05%) both grew slower than revenue again this quarter. What's different from last quarter: the effective tax rate held essentially flat at 26.59% (versus 26.56% a year ago), so unlike Q4 FY2023, there's no tax-rate tailwind cushioning the operating-line weakness this time - net income growth (2.46%) tracks operating income growth (2.15%) almost directly.
The Prescription
This is now the fifth quarter of this margin-compression arc, and the second in a row where "Other Expenses" - a line this bare SEBI filing format never itemizes - is the actual driver. The company should disclose what's inside that line if it wants investors to distinguish a temporary cost spike (a marketing push, a one-off store-opening cost) from a structural change (rising rents, higher store-operating costs as the base gets bigger). Until then, every quarter's read on this trend depends on which cost line happens to spike, which makes it look less like isolated bad luck and more like an operating-cost base genuinely rising faster than revenue - the exact opposite of the economies-of-scale story a growing retailer's multiple usually depends on.
Key Financial Metrics
Quarter ended June 30, 2023 (consolidated), compared against Q1 FY2023 (quarter ended June 30, 2022)
FX: INR 82.08 = USD 1 (June 29, 2023 month-end close).
| Metric | Q1 FY2024 (INR) | Q1 FY2024 (USD) | YoY Change | Note |
|---|---|---|---|---|
| Net Revenue (revenue from operations) | Rs. 11,865.44 crore | ~$1,445.6M | ⚠️ +18.20% | |
| Total Income (incl. other income) | Rs. 11,904.18 crore | ~$1,450.3M | ⚠️ +18.15% | |
| Total Expenses | Rs. 11,006.92 crore | ~$1,341.0M | ⚠️ +19.75% | Grew faster than revenue for a fifth straight quarter |
| Operating Income (EBIT, reconstructed) | Rs. 911.83 crore | ~$111.1M | ⚠️ +2.15% | 7.68% margin, down from 8.90% a year ago |
| Adjusted EBITDA» (reconstructed) | Rs. 1,074.01 crore | ~$130.8M | ⚠️ +3.53% | 9.05% margin, down from 10.34% |
| Finance Costs | Rs. 14.57 crore | ~$1.8M | ⚠️ -15.39% | |
| Profit Before Tax | Rs. 897.26 crore | ~$109.3M | ⚠️ +2.50% | |
| Tax Expense | Rs. 238.55 crore | ~$29.1M | ⚠️ +2.59% | Effective rate 26.59%, essentially flat vs 26.56% a year ago |
| Net Income | Rs. 658.71 crore | ~$80.3M | ⚠️ +2.46% | 5.55% net margin, down from 6.41% |
| Basic / Diluted EPS | Rs. 10.14 / Rs. 10.12 | ~$0.124 / ~$0.123 | ⚠️ ~+2.4% (basic, on a slightly larger share base) |
Operating Income and Adjusted EBITDA are reconstructed as PBT + Finance Costs [+ D&A for EBITDA], consistent with every prior DMart quarter on this site. No balance sheet or cash flow statement is disclosed as a separable quarter figure in this filing type. Paid-up equity share capital was Rs. 650.73 crore (~65.07 crore shares), up marginally from Rs. 648.26 crore (Q4 FY2023) on ESOP exercise.
Target Valuation Range
DMart's stock closed this quarter at Rs. 3,889.20, up 14.36% from Q4 FY2023's Rs. 3,401.05 close - a rally that outran the quarter's own weak earnings growth, suggesting the market is pricing this quarter's margin softness as continued noise rather than a re-rating trigger.
DMart traded at roughly Rs. 2,53,083 crore (~$30.8B) market capitalization at this quarter's close (June 29, 2023) - a trailing-twelve-month P/E near 106x, up from Q4 FY2023's ~93x entirely on the price rally, since TTM earnings barely grew.
| Item | Value |
|---|---|
| Share price (June 29, 2023 close) | Rs. 3,889.20 |
| Shares outstanding | ~65.07 crore |
| Market capitalization | ~Rs. 2,53,083 crore (~$30.8B) |
| 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 |
No real DCF is possible without a balance sheet. Trailing-twelve-month net income through this quarter - Rs. 658.71 crore (this quarter) plus Q4 FY2023 (Rs. 460.10 crore), Q3 FY2023 (Rs. 589.64 crore), and Q2 FY2023 (Rs. 685.71 crore) - totals Rs. 2,394.16 crore, implying a trailing P/E near 105.7x.
| Metric | This quarter (Q1 FY2024) | Prior quarter (Q4 FY2023) |
|---|---|---|
| TTM Net Income | Rs. 2,394.16 crore | Rs. 2,378.34 crore |
| Trailing P/E | ~106x | ~93x |
| TTM Revenue | ~Rs. 44,666.93 crore | ~Rs. 42,839.56 crore |
| EV/Revenue (market cap as EV proxy) | ~5.7x | ~5.1x |
The multiple re-expanded on price alone this quarter, while the underlying margin-compression trend (now five quarters running) kept extending. Paying a richer multiple for slower earnings growth is exactly the wrong direction for the two to move together, and it's the market, not the filings, that's making that call this quarter.
| Scenario | Key assumption | Implied trailing P/E | Implied value |
|---|---|---|---|
| Current (period-end close) | Actual June 29, 2023 close | ~106x | Rs. 3,889.20/share (~Rs. 2,53,083 crore, ~$30.8B) |
| Bear | The market recognizes the margin-compression trend isn't resolving and de-rates back toward the multiple pre-rally | ~85x | ~Rs. 3,128/share (~Rs. 2,03,504 crore, ~$24.8B) |
| Base | Multiple holds near where it closed, consistent with the trailing P/E above | ~106x | ~Rs. 3,901/share (~Rs. 2,53,781 crore, ~$30.9B) |
| Bull | Other Expenses growth decelerates and the rally is read as the market pricing in a coming margin recovery | ~130x | ~Rs. 4,785/share (~Rs. 3,11,241 crore, ~$37.9B) |