DMART Employee Costs Are Now Growing at 29% for a Second Straight Quarter

The Employee-Cost Growth Rate Isn't a One-Quarter Blip Anymore

This filing covers the quarter ended June 30, 2024 - Q1 of Avenue Supermarts' FY2025. Revenue grew 18.57% year-on-year to Rs. 14,069.14 crore, and net income grew 17.45% to Rs. 773.68 crore. Total expenses grew 18.62% to Rs. 13,056.61 crore - marginally faster than revenue, enough to pull Operating Income growth (17.36%, reconstructed, to Rs. 1,070.09 crore) back below revenue growth after Q4 FY2024's brief genuine margin expansion. This is a much smaller compression than the multi-quarter run through 2023, but it is a step back toward it rather than a continuation of the improvement.

The number worth flagging: Employee Benefit Expense grew 29.19% year-on-year to Rs. 266.23 crore - within a rounding error of Q4 FY2024's 29.12%. Two consecutive quarters at essentially the same ~29% payroll growth rate, well above revenue growth both times, is different from a single-quarter spike; it starts to look like a structural step-up in wage costs or headcount rather than a one-off. Other Expenses (+25.85%) and D&A (+18.85%) both also grew faster than revenue, but employee costs remain the standout.

The Prescription

Two straight quarters of ~29% employee-cost growth, against revenue growth in the high teens both times, is the kind of gap that compounds if it continues - and the filing still gives no way to tell whether it's driven by new-store headcount (which should moderate as those stores mature and their per-store staffing normalizes), broad wage inflation (which wouldn't moderate on its own), or a one-time compensation restructuring. Management should disclose per-store or per-employee cost trends alongside store-count data if it wants the market to distinguish "growing pains from a still-expanding chain" from "underlying cost inflation that will keep pressuring margins." Absent that, the safest read is to treat the elevated employee-cost growth rate as the primary swing factor to watch each quarter going forward - more so than depreciation or Other Expenses, which have both moderated since their own respective spikes earlier in this arc.

Key Financial Metrics

Quarter ended June 30, 2024 (consolidated), compared against Q1 FY2024 (quarter ended June 30, 2023)

FX: INR 83.37 = USD 1 (June 30, 2024 close).

Operating Income and Adjusted EBITDA are reconstructed as PBT + Finance Costs [+ D&A for EBITDA]. No balance sheet or cash flow statement is disclosed as a separable quarter figure in this filing type. Paid-up equity share capital held flat at Rs. 650.73 crore (~65.07 crore shares).

Beyond the Usual

Management Has Quietly Capped GMA Salience at ~23%, Down From a 27-28% Ceiling

On the July 30, 2024 investor/analyst call, management stated it does not expect general merchandise & apparel (GMA) salience to return to the 27-28% levels it held in past years, describing the current ~23% run-rate as the new broad trend line rather than a temporary dip. This is a real change to the long-term mix assumption embedded in DMart's gross-margin structure - GMA is the higher-margin category - and it is disclosed nowhere in the filing itself, only on the call. A reader modeling gross margin recovery off a reversion to the old GMA share would be modeling against management's own stated expectation.

DMart Ready Remains Structurally Loss-Making, With No Committed Path or Timeline to Profitability

On the same call, management disclosed that DMart Ready's EBITDA margin is still in the -2% to -3% range after several years of operation, and when asked directly what would move that margin into positive territory, the CFO/CEO response was that no specific lever or timeline exists - only that the core brick-and-mortar business "can afford to give it more time." This is a genuine disclosure gap: the filing itself gives no separate segment figures for DMart Ready's losses, so this margin range and the absence of a profitability roadmap are only available from the call, not the numbers.

Management's Case for a Permanently Smaller GMA Mix and an Admission on Wage Inflation

This filing's transcript is from Avenue Supermarts' annual investor/analyst conference call held July 30, 2024, covering FY2024 results and early commentary on the Q1 FY2025 quarter this post covers. Two things stood out in what management chose to emphasize.

First, management was explicit that the general merchandise & apparel recovery flagged at the top of the call should not be read as a return to the 27-28% GMA salience DMart used to run - the new normal is described as "around the current run rates of around 23%." This directly bears on the first Beyond the Usual finding above: it is a forward-looking guidance statement that caps a key margin lever, made proactively on the call rather than buried or contradicted anywhere in the numbers.

Second, when asked directly about the source of this quarter's opex increase, management attributed it to two things: wage inflation ("at a lower level, wage inflation is also going up rapidly") and deliberate investment in talent and organizational capability for a multi-year horizon, not a one-off cost. This is a rare instance of management naming wage inflation as a specific driver on the call - and it confirms, in management's own words, the structural read this post's opening section takes on Employee Benefit Expense growing ~29% for a second straight quarter: not a one-quarter anomaly, but an acknowledged cost trend the company itself expects to continue.

On quick commerce, management downplayed the competitive threat to store economics, estimating the impact at only 50-100 basis points of same-store-sales growth for high-throughput stores in intensely competitive cities, and stated plainly that it sees no stores with declining or negative growth because of it. This wasn't a subject flagged in Beyond the Usual, but it's worth noting management addressed the competitive question directly rather than avoiding it - the quantified 50-100bps estimate is more specific than the filing's own numbers allow a reader to verify independently.

Target Valuation Range

DMart's stock closed this quarter at Rs. 4,716.75, up 4.23% from Q4 FY2024's Rs. 4,525.60 close - a modest continuation of the rally, though smaller than the prior two quarters', consistent with a market that's noticed the return of mild margin compression even if it isn't reacting sharply to it.

DMart traded at roughly Rs. 3,06,934 crore (~$36.8B) market capitalization at this quarter's close (June 30, 2024) - a trailing-twelve-month P/E near 116x, essentially flat versus Q4 FY2024's ~116x, the multiple pausing at its richest level in this site's coverage rather than continuing to expand.

No real DCF is possible without a balance sheet. Trailing-twelve-month net income through this quarter - Rs. 773.68 crore (this quarter) plus Q4 FY2024 (Rs. 563.14 crore), Q3 FY2024 (Rs. 690.41 crore), and Q2 FY2024 (Rs. 623.35 crore) - totals Rs. 2,650.58 crore, implying a trailing P/E near 115.8x.

The multiple has now held in a ~109x-116x band for three straight quarters - the market's pricing in continued strong growth, but at a level that already assumes the employee-cost growth rate flagged above moderates rather than persists; two consecutive quarters at the same elevated rate is exactly the kind of evidence that should make a reader question that assumption rather than take it for granted.